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TECHNICAL ANALYSIS


PENDY'S PICKS: August 30, 2012

08/30/12 09:04:14 AM
by Donald W. Pendergast, Jr.

The .OEX barely moved at all on Wednesday, with the index now in a minor trading range.

Security:   .OEX, IEZ, APC, V, HON
Position:   N/A

The .OEX (Standard & Poor's 100) finished Wednesday's trading session at 648.64, closing up by a mere fraction; the index has begun to move into a nascent trading range, and with the 34-week cycle due to top soon, this may help explain the sudden lack of volatility.

There is no change in Pendy's Picks forecast for a 5% to 8% decline from the August 21, 2012, high of 656.10, however. Look for explosive moves in the market in September, most likely to the downside.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Google (GOOG) has joined this list; its ultra-high money flow histogram suggests that a pullback may occur soon. Bulls might want to wait for such an event instead of piling in after the recent breakout. Lowe's (LOW) has been making a runup to challenge a major swing high at 28.69, but money flows are anemic and a pullback toward support at 27.00 looks probable before much more upside can be made.

Bank of America's (BAC) daily chart features abysmal money flows; expect its recent strength to wane as the stock declines in September along with other key financials.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Wednesday, August 29, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 2 is a look at the weakest four-week relative strength (RS) performers in the .OEX. Occidental Petroleum (OXY) is now on the weak RS list and is looking vulnerable to a short-term decline toward 84.00-84.25. Intel (INTC) could trigger substantial selling if Wednesday's low of 24.54 is taken out soon. However, the stock has continued to hammer out a large falling wedge pattern, one that in the longer-term view is actually bullish.

Altria Group (MO) has miserable money flows and looks to be in the grasp of a bearish trend reversal, one that should easily take it down toward the 32.00 area near its 200-day exponential moving average (EMA).

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Wednesday, August 29, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving buy setup signals; 6% of the .OEX components issued new buy setup signals on Wednesday.

There were also four new swing sell signals for Union Pacific (UNP), Schlumberger (SLB), Devon Energy (DVN), and Simon Property Group (SPG). All four stocks will trigger short entries on declines below their respective Wednesday lows. Among the buy signals, Anadarko Petroleum (APC) is bucking the near-term bearish trend of most energy stocks; money flows remain bullish for the stock. Honeywell's (HON) chart pattern looks somewhat bullish, and if the stock can clear the 59.98 area, a bullish continuation move is possible.

Visa (V) is also displaying a similar chart pattern. Whether any moves higher will be true, sustainable breakouts or just wash-and-rinse fakeouts remains to be seen, especially with the .OEX looking more vulnerable to more downside in September 2012.

FIGURE 3: BUY SETUP SIGNALS. The S&P 100 (.OEX) components issuing buy setup signals at the close of trading on Wednesday, August 29, 2012; 6% of all .OEX components fired buy setup signals during the session, with four new sell setup signals also being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Among the exchange traded funds (ETFs) that Pendy's Picks follows was one sell setup signal: the iShares Oil Equipment and Services (IEZ) ETF (Figure 4). Halliburton (HAL) and Baker Hughes (BHI) could also be considered to be attractive shorts here, along with the previously mentioned Schlumberger (SLB).

FIGURE 4: ETFs. The exchange traded funds issued new swing sell signals on Wednesday, August 29, 2012. There were no new swing buy signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX is now trading in a very narrow range environment. Bulls and bears alike are hesitant to initiate new directional positions in large-cap stocks at the moment, but it shouldn't take too long for a significant news event to help ignite a rally or a selloff.

Late September-early October 2012 is still looking like the logical time frame to expect a tradable multicycle low, so expect any market surprises to occur to the downside. 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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