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TECHNICAL ANALYSIS


PENDY'S PICKS: August 29, 2012

08/29/12 10:30:39 AM
by Donald W. Pendergast, Jr.

The .OEX closed fractionally lower on Tuesday, once again being turned back by overhead supply.


Security:   .OEX, TWX, PFE, HAL, BHI
Position:   N/A

The .OEX (Standard & Poor's 100) finished Tuesday's trading session at 648.51, closing down by a mere fraction. The index again rallied intraday and was quickly turned back, proving once again that there is now a substantial supply zone near the 650.00 to 655.00 area. With the 15.9-week cycle already having turned lower in the index as we approach September, the odds are good that last week's swing high was the high for the remainder of 2012.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Cisco Systems (CSCO) is forming a consolidation area; look to see if gap support near 18.60 holds on any pullbacks. Sprint Nextel (S) is trading well above its 50-day exponential moving average (EMA); expect this key EMA (currently near 4.15) to be tested in September. Starbucks (SBUX) is meeting resistance near its own 50-day EMA; money flows are barely positive and a consolidation looks likely after such a strong rebound rally.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Tuesday, August 28, 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. Hewlett Packard (HPQ) is now the weakest stock in the index; the stock is still dropping sharply after last week's bearish gap, but some positive money flow divergences are manifesting. Dell (DELL) is also falling through the floor, having fired a new short signal that will trigger on a decline below 10.88. Excelon (EXC) is trading just above a key support area (36.25), and with positive money flows in place, it could be a bullish reversal candidate if support holds.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Tuesday, August 28, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving sell setup signals; 5% of the .OEX components issued new sell signals on Tuesday. There were also two new swing buy signals for Mastercard (MA) and Monsanto (MON). Both stocks will trigger long entries on rises above their respective Tuesday highs.

Among sell signals, it's interesting to note the presence of two oil services giants. Halliburton (HAL) triggers a short entry below 33.82, with Baker Hughes (BHI) going short on a decline beneath 46.64. Both stocks are consolidating, with long-term money flows in positive territory. Pfizer (PFE) goes short on a decline below 23.82; PFE has been range bound for the past four weeks and may attempt a breakout soon -- direction unknown.

FIGURE 3: SELL SIGNALS. The S&P 100 (.OEX) components issuing sell signals at the close of trading on Tuesday, August 28, 2012; 5% of all .OEX components fired sell setup signals during the session, with two 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 no buy or sell signals on Tuesday, which is not surprising, considering how many large caps are forming consolidation patterns on their daily charts.

The .OEX again provided useful feedback during Tuesday's trading session. The intraday repudiation of a rally near the 650.00 is confirming the difficulty the component stocks are having in enticing buyers in sufficient numbers to ignite a new rally.

Be on the lookout for a precipitating news event within the next week -- one that may very well help fuel a continuation of the recent decline from 656.10. Major support exists near 624.00-625.00 and these levels may act as price magnets for the next near-term decline. 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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