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TECHNICAL ANALYSIS


PENDY'S PICKS: July 31, 2012

07/31/12 09:52:09 AM
by Donald W. Pendergast, Jr.

The .OEX barely moved on Monday, July 30, as traders waited for more clues regarding its near-term direction.

Security:   .OEX, MO, FCX, PEP, ITA
Position:   N/A

The .OEX (Standard & Poor's 100) finished Monday's trading session at $637.36, closing higher by a miniscule 0.03%. The 34-week cycle in the .OEX is still the primary motive force that continues to draw the index higher; expect this cycle to rise into the second half of August 2012 with a couple of smaller-degree pullbacks in between. Friday's new RMO (Rahul Mohindar) swing buy setup signal also triggered a new long entry when the .OEX exceeded $638.57 during Monday's trading.

Figure 1 show us the strongest four-week relative strength (RS) performers in the .OEX; Sprint Nextel (S) continues to strengthen versus this key large-cap index and is still the top dog in this RS list, with Walgreen's (WAG) still hanging tough in second place.

Oil exploration/production and oil services stocks once again make up 50% of our top 10 RS list; HAL, BHI, NOV, SLB, and WMB are still the lowest-risk stocks to deploy near-term capital into, particularly for covered-call (CC) traders who can use August or September 2012 calls to construct their own short-term buy-write plays.

Note eBAY's newfound strength, making its appearance in sixth place on this list. AMGN and BAX continue to manifest health-care sector strength as well.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Monday, July 30, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 2 is a look at the weakest four-week RS performers in the .OEX; there are some real changes to report here. Starbucks (SBUX) is now the weakest RS player among the large caps with Dow Chemical (DOW) continuing to lose steam, rising to second place. Bank of America (BAC) has dropped much lower on the list; the stock has benefitted from the recent rise in the major stock indexes as money has slowly begun to flow back into financial issues.

The same big three tech titans remain on our weak RS list -- DELL, HPQ, and CSCO all remain in a relative state of funk waiting for some substantial rotations into tech to help free them from the confines of this list. Ford Motor (F) has been on/off this weak RS list for the past few weeks and is probably not a good place to deploy substantial amounts of trading/investing capital.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Monday, July 30, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing buy setup signals; 12% of the .OEX components issued new RMO swing buy signals on Monday.

There were no new swing sell setup signals to report. The new signals hail from a variety of industry groups and sectors; note that two of the signals are major insurance companies -- MetLife (MET) and Allstate (ALL) -- so be on the lookout for more bullish price action in that part of the financial sector if these setups are triggered on a rise above their Monday highs of $30.71 and $35.00, respectively.

In addition, watch to see if Freeport-McMoran (FCX) takes out its own Monday high of $34.08; the stock has been in a two-month-old trading range and some shorter-term cycles suggest it may be due for a tradable bounce before its dominant cycles start to drag the stock much lower between now and the spring of 2013.

FIGURE 3: SWING BUY SIGNALS. The S&P 100 (.OEX) components issuing RMO swing buy signals at the close of trading on Monday, July 30, 2012; 12% of all .OEX components fired buy setup signals during this session, with no new sell setup signals being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Five exchange traded funds (ETFs) flashed swing buy setup signals on Monday. The iShares Basic Materials (IYM) and the Defense and Aerospace (ITA) ETFs fired swing buy setup signals; a rise above their respective highs on Monday triggered new long trades in each of these ETFs. There were no swing sell setups in any of the ETFs that Pendy's Picks regularly follows. See Figure 4.

FIGURE 4: SWING BUY SETUP SIGNALS. The ETFs that fired new RMO swing buy setup signals as of the close of trading on Monday, July 30, 2012; there were no new RMO swing sell setup signals on Monday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX barely moved during Monday's trading session as traders and investors either took short-term profits and/or backed off to take a wait-and-see posture before redeploying or removing their capital from the markets. The index has had a very nice, trend channeling bull run since the June 4, 2012, low, up by 10%, and while a correction is always a possibility, the currently rising 34-week cycle in the .OEX appears to be determined to stay in bullish mode until the latter part of August.

Traders and investors should therefore give the two-month-old bull run every benefit of the doubt until proven otherwise. As always, 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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