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TECHNICAL ANALYSIS


PENDY'S PICKS: August 16, 2012

08/16/12 08:58:50 AM
by Donald W. Pendergast, Jr.

The .OEX continues to coil, pausing before what is likely to be a very tradable move -- but in which direction?

Security:   .OEX, BA, EMC, GLD
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at 646.13, closing up by a mere fraction, leaving traders and investors to wonder if the powerful rally that began on June 4, 2012, has finally begun to disintegrate. Cycles analysis suggests that the .OEX will reverse by no later than September 4, 2012, and that late September-early October 2012 is the most likely time to expect a termination of that anticipated selloff.

Figure 1 show us the strongest four-week relative strength (RS) performers in the .OEX; Halliburton (HAL) and National Oilwell Varco (NOV) are still confirming the relative strength of oil exploration/production and oil services groups, but if crude drops soon (as the cycles project), then expect their remaining stay on this top 10 list to be relatively short.

Sprint Nextel (S) has truly begun to go parabolic after putting in a very noticeable multimonth saucer/basing pattern and is still riding high at the top of the strong RS list. While a bona fide crash isn't likely to happen in this stock, there still should be a very tradable reversal coming up here soon. Bank of America (BAC) joins MetLife (MET), Citigroup (C), and Morgan Stanley (MS) here on the top-ranked stock list, but Goldman Sachs (GS) has decided to leave this party for the time being.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month as of Wednesday, August 15, 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) has finally been dethroned, with Bristol Myers Squibb (BMY) now being the worst-performing component in the .OEX over the past month. Eli Lilly (LLY), United Health Group (UNH), and Anadarko Petroleum (APC) remain on the list, although FedEx (FDX) has vanished and United Parcel Service (UPS) looks like it will also drop off soon (but maybe its business will pick up? Ahem).

McDonald's (MCD) has been on this underachieving stock list for a couple of weeks now; perhaps the appeal of fast food has been waning as families are forced by budget constraints to prepare a greater number of meals at home. Note that Southern Co. (SO) has reappeared on this list; even giant electric utility stocks can and do underperform the broad markets from time to time.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month as of Wednesday, August 15, 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 sell signals on Wednesday. There was also one new swing buy setup in Amazon (AMZN). A rise above 238.14 will trigger a new long entry, possibly allowing the stock to finally break free of the 15-week-old consolidation pattern that has restrained it. Boeing (BA), Comcast CL A (CMCSA), and EMC Corp. (EMC) will all trigger new short entries if they decline below their Wednesday lows of 72.75, 25.44, and 34.00, respectively.

FIGURE 3: SWING SELL SIGNALS. The S&P 100 (.OEX) components issuing RMO swing sell signals at the close of trading on Wednesday, August 15, 2012; 3% of all .OEX components fired swing sell setup signals during this session, with one new swing buy setup signal also being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
In the exchange traded fund (ETF) corner of the US stock market, we have only one new signal to report today, and it comes on the 41st anniversary of a very important date in US history. The SPDRs Gold Trust ETF (GLD) has fired a sell setup signal and will trigger a short sell on a decline below 155.27 (Figure 4).

If you are a student of the gold market, you already know that it was on August 15, 1971, that President Richard Nixon officially closed the gold window, effectively denying other nations their legal right to redeem their US currency holdings in exchange for real, shiny yellow gold.

The US abandoned the final, feeble remnants of the watered-down Bretton Woods-variety gold standard at that point; little wonder that the cost of living is about 10 times higher now than in 1971. The politicians (of both major parties) and the US central bank have created ever-larger amounts of currency, credit, and debt in the ensuing 41 years, eroding the general standard of living in the nation -- and almost all of it due to the lack of a true, enforceable gold standard. How ironic that the gold market is flashing a sell setup signal on the anniversary of such a fateful day in the history of the United States. Go figure.

FIGURE 4: SWING SELL SETUP SIGNAL. The one ETF that fired a new RMO swing sell setup signal as of the close of trading on Wednesday, August 15, 2012. There were no new RMO swing buy setup signals on Wednesday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX experienced a narrow range trading session on Wednesday and appears to still be preparing for a noticeable lurch in either direction. The 41-day and 20-day cycles in the index are heading lower, with its 10-day cycle soon to follow suit, so be prepared for an unexpected selloff and reversal soon.

As stated in earlier editions of Pendy's Picks, the .OEX has already met its minimum time/price projection for the termination of its June through August 2012 rally, and a significant correction/reversal is anticipated to drag the index lower through September 2012. 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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