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TECHNICAL ANALYSIS


PENDY'S PICKS: September 7, 2012

09/07/12 09:08:40 AM
by Donald W. Pendergast, Jr.

The .OEX broke higher from a minor consolidation zone on Thursday, surging upward by more than 2%.

Security:   .OEX, NUCL, DVN, DELL, QC
Position:   N/A

The .OEX (Standard & Poor's 100) finished Thursday's trading session at 658.35, closing up by 2.02%. Pendy's Picks had already projected that a final upward move was very likely in the index, and that the move would last until approximately September 14 to September 21, 2012, before a final multicycle peak is achieved.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Goldman Sachs (GS) led the financials in the index higher with wide daily range and big volume; the stock's long-term money flow is still negative, suggesting that GS will also soon peak by the third week of September before staging a correction.

Strong (weak) money flow trends are the raw market fuel that drives a sustained uptrend (downtrend), something all traders and investors need to be aware of. Bank of America (BAC) is in exactly the same predicament, but even its short-term money flow is negative; it's yet another warning that you need to make hay while you can in this final leg up in the .OEX and .SPX.

A break above 8.40 in BAC could lead to more short-term upside. Google (GOOG) remains on a bullish tear; short-term and long-term money flow is extremely bullish as latecomers continue to pile into this issue. The company's Android business is doing exceptionally well and should be one of the last stocks to peak during this strong summer .OEX bull run.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Thursday, September 6, 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; judging from this weak RS stock list, you'd think that people had simply stopped buying gas and home PC's and notebooks. The presence of DELL, HPQ, INTC, OXY, HAL, BHI, and SLB here show just how poorly the energy and computer maker stocks have fared over the past month.

United Parcel Service (UPS) is a new addition here; the stock has been struggling since breaking lower in mid-July 2012. It just took out a major support level at 72.15 and could be on track to test 66.46 very soon; money flows are horrific as the smart money keeps distancing themselves from this transport issue.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Thursday, September 6, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving buy signals; DELL is perhaps the most interesting of the bunch, given its gigantic summer decline. Devon Energy (DVN) also looks nice here, especially since its money flows are still positive. Capital One (COF) has been forming a lovely, bullish pennant on its daily chart; look for a rise above 58.60 to lead to even more gains into the second half of September 2012. QCOM's break higher also looks legit, and if 63.34 is exceeded soon, look for more near-term gains through mid-month.

FIGURE 3: BUY SIGNALS. The S&P 100 (.OEX) components issuing buy signals at the close of trading on Thursday, September 6, 2012; 5% of all .OEX components fired buy signals at the close of the session, with no exit signals issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Among the exchange traded funds (ETFs) that Pendy's Picks follows, there was one buy signal in the iShares Global Nuclear Energy (NUCL) ETF (Figure 4). Nuke-related stocks have been fairly tame for the last few years; the mania in these stocks during 2006-07 seems like such a distant memory now.

FIGURE 4: ETFs. The exchange traded funds issuing buy signals at the close of trading on Thursday, September 6, 2012. There were no exit signals issue on Thursday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX followed through with a strong, bullish continuation move on Thursday, closing up by more than 2%. This confirms the previous .OEX 20- and 40-day cycle analysis in the index, which calls for a final surge higher between now and September 21, 2012. Be aware that this late-stage rally will draw in many disbelievers and procrastinators into the market, and once the .OEX peaks within the next two weeks or so, there should be a very nasty correction. 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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