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TECHNICAL ANALYSIS


PENDY'S PICKS: July 12, 2012

07/12/12 09:12:43 AM
by Donald W. Pendergast, Jr.

The .OEX manages to find support near a key price level; meanwhile, gold miners take a real beating.

Security:   .OEX, AA, CAT, FCX, UTX
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at nearly the same price it opened (closing at 615.77), successfully completing (or coming very near to completing) an important intraday support test during the session -- dropping down as far as 611.94, which happens to be just a tad above the key Fibonacci confluence retracement of 610.00/611.00.

With the 32-day, 16-week, and 34-week cycles still in rising mode, look for the action over the next two to three sessions in the .OEX to reveal this large-cap market's true intentions which, according to intensive cyclical analysis, appear to be toward higher valuations -- at least up until October 2012, which is when several of these key cycles are likely to peak and turn lower.

In the meantime, Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Not too much change to report here; health sector names are still ranking high in RS, including Baxter International (BAX), Amgen (AMGN), and Merck (MRK). NewsCorp (NWSA) is beginning to fade as the news of its restructuring/splitoff of divisions is getting to be old news by now.

FIGURE 1: STRONGEST 10 OEX. The 10 strongest S&P 100 (.OEX) components over the past month, as of Wednesday, July 11, 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; not much in the way of day-to-day change here, either. Nike (NKE), Sara Lee (SLE), Ford Motor (F), and Hewlett-Packard (HPQ) continue to lag the broad markets; Dupont (DD), Dow Chemical (DOW), Intel (INTC), and International Business Machines (IBM) remain weak versus the broad markets. Walgreen's (WAG) has faded from view as its downward momentum vs. the .OEX has begun to lessen (which might mean that the stock is slowly being accumulated by value-hungry investors). All of these stocks should experience tradable bounces if the anticipated reversal higher (from the 610.00/611.00 area) in the .OEX commences soon.

FIGURE 2: STRONGEST 10 OEX. The 10 weakest S&P 100 (.OEX) components over the past month, as of Wednesday, July 11, 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; 13% of the .OEX components issued new RMO swing sell signals on Wednesday, which is very bearish -- but only if the majority of these sell setups actually trigger short entries on a drop below their respective lows made on Wednesday.

Keep a close watch on shares of Freeport-McMoran (FCX); in one of my recent TCA articles, I made the case for substantially lower prices in FCX into 2013. The stock is at a critical support level, and if this support near 30.00/31.00 gives way, then the stage is set for powerful bearish cycles to grind the stock to much lower valuations.

There were no new RMO buy signals in .OEX components on Wednesday. As mentioned in yesterday's Pendy's Picks, if only a fraction of these stocks actually trigger a short entry, it will be a good indication that the broad market intends to bottom soon and turn back higher as the dominant (and bullish) higher-degree cycles begin to exert control once again.

FIGURE 3: OEX COMPONENTS ISSUING SWING SELL SIGNALS. The S&P 100 (.OEX) components issuing RMO swing sell signals at the close of trading on Wednesday, July 11, 2012; 13% 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.
 
In the world of exchange traded funds (ETFs), we have four new short sales to be aware of -- the iShares Basic Materials (IYM), iShares Industrial Sector (IYJ), iShares Transportation (IYT), and iShares Consumer Discretionary (RXI) ETFs will trigger new short entries on a drop below Wednesday's lows. Goldcorp's (GG) announcement that their cost-per-ounce to mine gold has risen to more than $340/oz. sent the precious metals mining stocks into a tailspin during Wednesday's trading session, which had an impact on the basic materials sector ETF (IYM). See Figure 4.

FIGURE 4: ETFS AND SWING SELL SIGNALS. The ETFs that fired new RMO swing sell signals as of the close of trading on Wednesday, July 11, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
If less than half of today's 13 sell signals actually trigger new short entries this week and the .OEX also manages to make a daily close above its Wednesday high of 617.05, then there is a good chance for immediate, bullish follow-through in many large-cap stocks. Trade wisely until we meet here again.



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: lineartradingsys@gmail.com

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