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TECHNICAL ANALYSIS


PENDY'S PICKS: August 2, 2012

08/02/12 10:28:18 AM
by Donald W. Pendergast, Jr.

The .OEX pulled back once again on Wednesday, looking for $630.00 to act as support.

Security:   .OEX, WMT, HPQ, DIS, IYT
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at $634.28, closing down by 0.25%. As I previously mentioned, the 34-week cycle in the .OEX is still the main dynamic that continues to draw the index higher, several smaller-degree cycles have topped and a minor pullback is already under way. Look for support to manifest near $630.00 if the 34-week cycle is still in primary control, with prices to snap quickly higher as we move into August.

Figure 1 show us the strongest four-week relative strength (RS) performers in the .OEX; while there still isn't too much change to report in this list, we see that we are back up to five stocks from the energy sector (HAL, BHI, WMB, NOV, and SLB). Sprint Nextel (S) is still the head honcho, with Walgreen's (WAG) playing a respectable supporting role as second fiddle. Ebay (EBAY) has disappeared from our top 10 RS list; NOV graciously obliged and stepped in to fill the vacant slot in the rankings. BAX and AMGN remain in our list, virtually unchanged from yesterday, with EMC Corp. (EMC) continuing to bring up the rear.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Wednesday, August 1, 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; changes here are relatively minor. Starbucks (SBUX) remains the weakest RS player among the large caps, with Dow Chemical (DOW) continuing to lose steam, falling to fifth place. Lowe's (LOW) remains high on the weak RS ranking list, probably not a happy situation for long-term shareholders.

Bank of America (BAC) is still reserving its right to remain on the list, showing more staying power than an athlete's foot epidemic on a rainy day on a muddy field. DELL and HPQ still look stuck here, but note that Cisco Systems (CSCO) has finally taken a leave of absence and, as we shall see just below, has just fired the lone swing buy setup signal in the 100-stock universe of .OEX components. This could be one to watch for a bullish reversal once the .OEX gets back in line with its rising 34-week cycle.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Wednesday, August 1, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing buy setup signals; only 3% of the .OEX components issued new RMO swing sell signals on Wednesday. There was one new swing buy setup signal in Cisco Systems (CSCO); a rise above Wednesday's high of 16.07 might be not only the buy trigger for a long entry in this stock but also the signal that the entire tech sector is poised for a recovery rally.

Wal-Mart (WMT), Hewlett Packard (HPQ), and Disney (DIS) are all poised for further drops if their Wednesday lows are exceeded during Thursday's trading session. If we see even more sell swing setups print during Thursday's session, perhaps the pullback in the .OEX may be more substantial.

FIGURE 3: SWING SELL SIGNALS. The S&P 100 (.OEX) components issuing RMO swing sell signals at the close of trading on Wednesday, August 1, 2012; 3% of all .OEX components fired swing sell setup signals during this session, with only one new swing buy setup signal being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Only one exchange traded fund (ETF) flashed a swing sell setup signal on Wednesday, the iShares Transportation (IYT) ETF. A decline below its Wednesday low of $88.80 triggers a new short trade; there were no swing buy setups in any of the ETFs that Pendy's Picks regularly follows. See Figure 4.

FIGURE 4: SWING BUY SETUP SIGNAL. The single ETF that fired a new RMO swing buy setup signal as of the close of trading on Wednesday, August 1, 2012; there were no new RMO swing sell setup signals on Wednesday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX pulled back a bit more during Wednesday's trading session, confirming that a small-degree cycle high has already been made. But until the 34-week cycle actually turns lower, the probabilities still favor a rise toward the $650.00 to $660.00 area by the final week of August 2012.

To repeat the obvious, focusing on the strongest relative strength stocks from industry groups outperforming the .OEX and .SPX remains the lowest-risk pathway for risk capital deployment until further notice.
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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