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TECHNICAL ANALYSIS


PENDY'S PICKS: August 9, 2012

08/09/12 08:58:18 AM
by Donald W. Pendergast, Jr.

The .OEX ekes out another tiny gain even as its 10-day cycle peaks.

Security:   .OEX, AXP, BA, HD, LOW
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at $644.61, closing up by 0.06%, continuing to build upon last Friday's strong bullish reversal. The 10-day cycle has now peaked even as the 20-day, 61-day, and 34-week cycles continue to rise. The 40-day cycle is already turning lower, so we will need to monitor daily price action to see which group of cycles will seize near-term control of this key large-cap index.

The .OEX has already reached its minimum price target of $640.00 and in theory could begin a substantial corrective move and or full scale trend reversal at any time; however, the weight of the cyclical evidence still suggests that the index will finish August at a higher price than it is currently trading at.

Figure 1 show 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) are continuing to look strong as crude oil has begun to reach the $94 price range.

Sprint Nextel (S) is still rocketing ever higher, but its daily chart suggests that it may soon experience a bit of profit taking as price goes near-parabolic. Walgreen's (WAG) has now been on the top RS list for four weeks and is also in good technical shape. Gilead Scientific (GILD) has been dropped from the top-ranked stocks list, even as EMC Corp. (EMC) and Qualcomm (QCOM) continue to represent the tech sector here.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month as of Wednesday, August 8, 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; Starbucks (SBUX) remains high on the critical list of weak RS stocks, with the presences of Bristol Myers Squibb (BMY), CVS Caremark (CVS), and United Health Group (UNH) still confirming the weakness in the health sector stocks.

The fact that United Parcel Service (UPS) and FedEx (FDX) are both on the 10 weakest stocks list speaks volumes about the lack of global tonnage in the air and ground transport industry; a weak economy doesn't ship as much freight and the stock prices of the freight carriers suffer as a result. Verizon Communications (VZ) is a new addition to our list; it's fascinating to see Sprint Nextel (S) doing so well even as VZ struggles.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month as of Wednesday, August 8 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing buy setup signals; 5% of the .OEX components issued new RMO swing buy signals on Wednesday. There was one new swing sell setup signal in Simon Property Group (SPG); it will trigger a short entry on a decline below its Wednesday low. American Express (AXP), Boeing (BA), and United Health Group (UNH) all look like interesting long setups; UNH has been underperforming the .OEX for several weeks, so this could be the start of a meaningful, tradable rally for the stock if it can take out its Wednesday high.

Note the two buy setups in Lowe's (LOW) and Home Depot (HD). It will be interesting to see if they can rise throughout August along with the rest of the .OEX.

FIGURE 3: SWING BUY SIGNALS. The S&P 100 (.OEX) components issuing RMO swing buy signals at the close of trading on Wednesday, August 8, 2012; 5% of all .OEX components fired swing buy setup signals during this session, with one new swing sell setup signal being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Three exchange traded funds (ETFs) flashed swing buy setup signals on Wednesday (Figure 4); the iShares Health care Sector (IYH), Healthcare Providers (IHF), and Home Construction (ITB) ETFs will trigger new long entries on a rise above their respective highs made on Wednesday. There was one new swing sell setup in the iShares Cohen & Steers Realty Majors (ICF) ETF.

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 Wednesday, August 8, 2012; there was also one new RMO swing sell setup signal on Wednesday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX stalled momentarily on Wednesday; the 10-day cycle in the index peaked and has begun to turn lower. However, several higher-degree cycles are continuing to rise, and the balance of the technical evidence is still weighted toward higher valuations in the .OEX through the end of August 2012.

With crude oil back in the mid-$90 range again, it might pay to stick with the best-performing stocks from the oil services and oil exploration/production groups for as long as the .OEX continues to rise. 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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