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TECHNICAL ANALYSIS


PENDY'S PICKS: August 8, 2012

08/08/12 10:34:11 AM
by Donald W. Pendergast, Jr.

The .OEX continues to power higher; the index also broke above key resistance of $643.29.

Security:   .OEX, DELL, GD, DIS, IAI
Position:   N/A

The .OEX (Standard & Poor's 100) finished Tuesday's trading session at 644.25, closing up by .33%, continuing to build upon last Friday's strong bullish reversal. The most significant detail in Tuesday's price action was that the .OEX finally blasted above (and also closed above) its May 1, 2012, swing high of $643.29. As mentioned in previous editions of Pendy's Picks, until the cyclical analysis changes, expect late August/early September 2012 to be the anticipated date for this rising cycle to peak, followed by a noticeable pullback in the .OEX throughout September 2012.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX; energy sector stocks continue to outperform, with Baker Hughes (BHI), Halliburton (HAL), and National Oilwell Varco (NOV) still leading the charge higher in the oil exploration/production/services groups. Sprint Nextel (S) is still the commander in chief of the list, with Walgreen's (WAG) still looking strong in fourth place. Gilead Scientific (GILD) has begun to fade somewhat, with EMC Corp. (EMC) continuing to outperform the market as a whole. Qualcomm (QCOM) joins the top 10 RS list for the first time in a while; as the .NDX also rises along with the .OEX and .SPX, QCOM should post some additional gains throughout August.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Tuesday, August 7, 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; we do see a couple of notable additions to report today; MasterCard (MA) joins the weak RS list as does FedEx (FDX). This writer finds this to be fascinating, especially because the stock market has been rising strongly for the past nine weeks. Since the performance of MasterCard and FedEx stocks are such useful barometers of the health of the real economy (retail transactions and airfreight/trucking), is it not interesting to note how badly these two stocks are lagging during such an impressive rally in the .OEX? There is often a distinct disconnect between the economy of Wall Street and the one found on Main Street, and these two key .OEX components appear to be pointing this out in a big way.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Tuesday, August 7 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing buy setup signals; 3% of the .OEX components issued new RMO swing buy signals on Tuesday. There were three new swing sell setup signals as well; Abbott Labs (ABT), Colgate (CL), and McDonalds (MCD) will trigger short entries on declines below their Tuesday lows. Dell (DELL) has printed a new swing buy setup signal, as have General Dynamics (GD) and Disney (DIS). All three will trigger new long entries on a rise above their Tuesday highs of $12.22, $64.24, and $50.31, respectively. The buy setup in DELL looks especially attractive here, as the stock has just confirmed the validity of a powerful bullish price/money flow divergence (based on the 34-day Chaikin money flow (CMF)(34) histogram). DELL looks like it has an easy run up to $12.50 from here.

FIGURE 3: SWING BUY SIGNALS. The S&P 100 (.OEX) components issuing RMO swing buy signals at the close of trading on Tuesday, August 7, 2012; 3% of all .OEX components fired swing buy setup signals during this session, with three new swing sell setup signals being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Three exchange traded funds (ETFs) flashed swing buy setup signals on Monday; the iShares Transportation (IYT), Broker-Dealers (IAI), and Russell 2000 (IWM) ETFs will trigger new long entries on a rise above their respective Tuesday highs of $91.46, $21.29, and $80.57 (Figure 4). There were no new swing sell setups to report.

FIGURE 4: SWING BUY SETUP SIGNALS. The three ETFs that fired a new RMO swing buy setup signal as of the close of trading on Tuesday, August 7, 2012; there were also two new RMO swing sell setup signals on Tuesday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX continued on its upward trajectory on Tuesday, confirming the significant 61-day cycle low that occurred late last week. There is no change in the recent cycle analysis for the .OEX; expect the broad market indexes to continue to rise through August until the dominant cycle for the June-August 2012 rally -- the 34-week cycle -- has finally peaked.

Expect a noticeable selloff for at least the first three weeks of September 2012. If IWM does go long on a rise above $80.57, that will also be a big bullish tailwind for the stocks in the .OEX. 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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