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TECHNICAL ANALYSIS


PENDY'S PICKS: August 28, 2012

08/28/12 08:31:03 AM
by Donald W. Pendergast, Jr.

The .OEX closed virtually unchanged on Monday, but it did experience a noticeable intraday pullback after running higher in the first half of the session.

Security:   .OEX, ABT, APA, CAT, SMH
Position:   N/A

The .OEX (Standard & Poor's 100) finished Monday's trading session at 649.00, closing down by a mere fraction; the index ran higher in the first half of the session, pulling back sharply as it ran into a supply zone at the 651.53 level. This is another likely clue that a bearish trend reversal is likely already baked into this market's cake; the line of least resistance from a price cycle perspective still appears to be toward lower valuations for the .OEX over the next four to six weeks.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Cisco Systems (CSCO) is still leading the pack, and a break above 19.40 could lead to another surge higher, up toward the 20.00 level. Sprint Nextel (S) is headed lower again as latecomer bulls begin to throw in the towel -- for now. Apple Inc. (AAPL) has printed what may be an exhaustion gap (daily chart basis). If this is the case, look for this stock to get slammed hard if the .OEX downturn picks up speed this week.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Monday, August 27, 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. Coca-Cola (KO) is now leading the index lower; the stock looks like a cinch to descend to its 200-day exponential moving average (EMA) near the 36.85 area in the near future, especially with its declining money flow trends.

Wal-Mart Stores (WMT) has bounced higher from its 50-day EMA; look for this rally to stall soon, with the stock declining toward its own 200-day EMA near the 65.00 area. Simon Property Group (SPG) has just appeared on our weak RS list; money flows are deteriorating fast in this stock and existing longs should be running close stops, if not actually considering a quick exit before more significant declines occur.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Monday, August 27, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving sell setup signals; 6% of the .OEX components issued new sell signals on Monday. There were also four new swing buy signals for Bristol Myers (BMY), Raytheon (RTN), Simon Property Group (SPG), and US Bancorp (USB) -- all will trigger long entries on rises above their respective Monday highs.

Caterpillar (CAT) triggers a new short entry on a drop below 86.54; long-term money flow is still beneath its zero line and CAT appears to be heading lower until a major multicycle low can be achieved -- perhaps in four to six weeks or so. Ford Motor Co. (F) triggers a new short entry on a decline below 9.38; its money flows are extremely bearish and retest of the early August swing low of 8.82 is a real possibility if the .OEX turns southward with a vengeance. International Business Machines (IBM) will also trigger a short entry; if 195.61 is breached, look for further near-term declines.

FIGURE 3: SELL SIGNALS. The S&P 100 (.OEX) components issuing sell signals at the close of trading on Monday, August 27, 2012; 6% of all .OEX components fired sell setup signals during the session, with three new buy setup signals also issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Among the exchange traded funds (ETFs) that Pendy's Picks follows, there were two sell setup signals to report on Friday -- the Semiconductor HOLDRs (SMH) and the iShares Basic Materials (IYM) ETF (Figure 4). Sell short trigger points are (if the ETF declines to this price and/or opens below this price) 32.76 for SMH and 65.64 for IYM. Gold mining shares are looking extremely vulnerable near term, and as go gold/silver/metals stocks, so usually goes IYM.

FIGURE 4: ETFs SELL SIGNALS. The exchange traded funds issuing sell signals at the close of trading on Monday August 27, 2012; there were no new buy setup signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX provided more valuable feedback during Monday's trading session. The sharp intraday reversal lower after it rallied to 651.53 was yet another confirmation that the near-term trend direction is likely to lower valuations. The next substantive support level is near 624.00-625.00, so be aware that the next leg down could be in the form of a swift multiday swing down toward that price zone. 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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