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TECHNICAL ANALYSIS


PENDY'S PICKS: September 4, 2012

09/04/12 09:54:23 AM
by Donald W. Pendergast, Jr.

The .OEX turned higher again on Friday. Is the index setting up for a final thrust higher into mid- to late September?

Security:   .OEX, ALL, BHI, CAT, HPQ
Position:   N/A

The .OEX (Standard & Poor's 100) finished Thursday's trading session at 646.41, closing up by 0.60%. The index may be putting in a minor consolidation prior to launching its final thrust higher within the framework of the three-month-old rally that it is still enjoying.

The .OEX is expected to put in its final swing high between September 4 and September 21, 2012, so traders need to be prepared for just about anything over the next few weeks.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX; Apple, Inc. (AAPL), has been declining. Whether this is just a simple pullback or the start of a trend reversal is unclear, but long-term money flow is now negative, with distribution very much evident.

Freeport McMoran (FCX) is starting to regain technical strength and looks to be in position to rally from here; money flows are bullish. Home Depot (HD) has been coiling (consolidating within a very narrow range) for the past couple of weeks and could be ready to attempt a break higher; money flow is excellent for this home improvement giant.



FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Friday, August 31, 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; Norfolk Southern (NSC) is a new addition here and the stock may be setting up for more short-term declines. Bearish money flows certainly tip the odds in favor of lower prices, especially if Thursday's low of 72.22 is taken out soon.

Excelon (EXC) is rapidly approaching its key support zone near 36.27 and this area may provide some sort of a tradable bounce for skilled traders to capitalize on. Hewlett Packard's (HPQ) long-term business prospects may be in question, but the stock may be getting close to making a major multicycle low soon. Money flows are horrible, but that's not surprising, after such a long-term decline.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Friday, August 31, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving buy signals; Pendy's Picks is now going to use a long-only, short-term trading system that will alert readers to long entry and exit signals in S&P 100 component stocks.

There are six new signals: Allstate (ALL), Baker Hughes (BHI), Caterpillar (CAT), Freeport McMoran (FCX), Hewlett Packard (HPQ), and United Parcel Service (UPS). All of these stocks are capable of a short-term pop but are not necessarily great value plays, even though some of these stocks are definitely in better long-term shape than others! As far as exit signals go, there were two exit signals for Costco (COST) and United Health Group (UNH).

FIGURE 3: BUY SIGNALS. The S&P 100 (.OEX) components issuing buy signals at the close of trading on Friday, August 31, 2012; 6% of all .OEX components fired buy signals during the session, with two exit signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Among the exchange traded funds (ETFs) that Pendy's Picks follows were two buy signals: the Market Vectors Gold Miners (GDX) and Semiconductor HOLDRs (SMH) (Figure 4). Pendy's readers can also look at key components within these two ETFs such as Newmont Mining (NEM), Yamana Gold (AUY), Barrick Gold (ABX), Intel (INTC), Advanced Micro Devices (AMD), and KLA-Tencor (KLAC) for additional short-term buying opportunities. There were no exit signals for any ETF that Pendy's Picks tracks.

FIGURE 4: BUY SIGNALS. The exchange traded funds that issued new buy signals on Friday August 31, 2012; there were no exit signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX staged a bit of a bullish U-turn on Friday; Pendy's Picks revised its cycle projections slightly and now believes that the .OEX will surge higher one more time between now and September 21, 2012.

Any near-term weakness in the .OEX and .SPX may be viewed as a low-risk buying opportunity so long as close stops and modest profit targets are adhered to. 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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