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PENDY'S PICKS: July 9, 2012

07/09/12 12:10:22 PM
by Donald W. Pendergast, Jr.

The .OEX begins to pull back, seeking a short-term cyclical bottom in the midst of an ongoing bullish trend.

Security:   .OEX
Position:   N/A

The .OEX (Standard & Poor's 100) gained pulled back during Thursday's trading session, closing down by 0.86% (closing at 620.20). As mentioned in earlier editions of Pendy's Picks, the 61-day and 16-week price cycles are still in a decidedly bullish mode even as the 61-day cycle has peaked and is now starting to turn lower along with the 32-day, 21-day, and 10-day price cycles.

Near-term support levels to watch for a turn back higher are near the 618.00 area; if the pullback is of a higher degree, look for the 611.00 area to offer some support and a bounce back higher as the higher-degree cycles in this key large-cap index get back to the business of pulling the .OEX above the May 1, 2012, high of 643.29.

Figure 1 is a look at the strongest four-week relative strength performers in the .OEX. NewsCorp (NWSA) and Sprint Nextel (S) are still outperforming the index by a wide margin over the past month; Norfolk Southern (NSC) is rising rapidly toward the top of this RS ranking list, with Weyerhaeuser (WY), Time Warner (TWX), Regions Financial (RF), and Raytheon (RTN) all continuing to perform well on a relative basis. Of interest is the inclusion of health-sector giant Johnson and Johnson (JNJ) and tech behemoth Oracle (ORCL).

FIGURE 1: STRONGEST OEX. The 10 strongest S&P 100 (.OEX) components over the past month, as of Friday, July 9, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
Figure 2 is a look at the weakest four-week relative strength performers in the .OEX; Nike (NKE) Sara Lee (SLE), Ford Motor (F), Hewlett-Packard (HPQ), and Walgreen's (WAG) all continue to underperform. Caterpillar (CAT) and Devon Energy (DVN) also make new guest appearances in this "weakest of the weak" large-cap list.

Despite last week's rebounds in the price of crude oil, expect the entire energy sector to be under pressure in the near term, as global concerns over continuingly sluggish economies weigh on the minds of traders and investors. The share price of CAT also appears to be generally correlated to the amount of bullishness/bearishness surrounding the developing economies of Asia; CAT is also well-correlated to the general price cycle dynamics that drive the .OEX, so expect CAT prices to be lower in the spring of 2013 than they are today.

FIGURE 2: WEAKEST OEX. The 10 weakest S&P 100 (.OEX) components over the past month, as of Friday, July 6, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
Figure 3 are the S&P 100 components giving Rahul Mohindar (RMO) swing sell signals; 6% of the .OEX components issued new RMO swing sell signals on Friday, July 6, and there were no new RMO buy signals at all. This confirms that the new short-term cycle high in the .OEX.

A few more sessions of downside until a test of support near 618.00/611.00 is the big idea to get hold of. The RMO swing sell signals on these six stocks hail from a variety of sectors/groups, including telecom (T), basic materials/chemicals (DD), financial (C, JPM), pharmaceuticals (BMY), and technology/semiconductors (INTC). This shows that the pullback in the OEX is broad-based and that once the aforementioned support levels are reached, the entire market should experience a substantial rally, perhaps at least up to (.OEX) 643.29. Each of the stocks listed actually triggers a short entry on a drop below their respective Friday lows.

FIGURE 3: OEX ISSUING RMO SWING SELL SIGNALS. The S&P 100 (.OEX) components issuing RMO swing sell signals at the close of trading on Friday, July 6, 2012; 6% of all .OEX components fired sell signals during this session, with no new buy signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
Once again, there were no buy or sell signals on Friday for any of the exchange traded funds (ETFs) that Pendy's Picks tracks on a daily basis.

The .OEX has a bit of a shakeout as the strong hands in this biggest of the big large-cap market attempt to take stock from the "dumb money" on this minor pullback. The higher-degree cycles in the .OEX continue to affirm that the line of least resistance in this index is toward higher valuations over the next few months before a major bullish reversal finally takes hold. Stay tuned and trade wisely.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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