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TECHNICAL ANALYSIS


PENDY'S PICKS: September 10, 2012

09/10/12 09:06:18 AM
by Donald W. Pendergast, Jr.

The .OEX continued on its upward trajectory on Friday, further confirming its latest bullish breakout.

Security:   .OEX, IAT, IGN, MRK, NKE
Position:   N/A

The .OEX (Standard & Poor's 100) finished Friday's trading session at 660.41, closing up by .31%. Pendy's Picks is still forecasting a continued bull run in the .OEX between now and the third week of September 2012, as the 20-, 40-, and 80-day cycles in the index combine to make one final thrust higher before a major multicycle peak is achieved.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX. Financials are leading the charge higher, with MS, GS, BAC, and C (Citigroup) surging upward. Citigroup may make it to 35.00 before major resistance slows its ascent -- long-term money flow is still negative, so expect to see some near-term profit taking in this stock.

eBay (EBAY) still looks to be in a very bullish mode, but be aware that its short-term money flow indicator is suggesting that the stock is under distribution. With the entire US market heading rapidly toward a major multicycle high, this can be interpreted as another early warning that the smart money already has their parachutes packed for a quick bailout before the broad market turns lower.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Friday, September 7, 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; a mix of technology, energy, transport, and consumer staples fill out the list. Baker Hughes (BHI) has experienced a sharp relief rally of late; short-term and long-term money flows are now bullish, hinting that the stock may have more room to run higher on this swing.

Intel (INTC) has been in a four-month-old downdraft but may be getting close to a multicycle low; look for potential support near 23.05 and/or 22.51 to provide a meaningful bounce. Phillip Morris (PM) looks very susceptible to more selling, especially if support at 88.68 is breached. There is no sign at all of any bullish money flow divergences in PM at the moment; it could be a great long put play.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Friday, September 7, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving overbought and/or exit signals. The PPK system used by Pendy's Picks is based on a pullback entry, which explains the large number of exits after such a strong two-day bullish run in the broad markets. Ten stocks gave overbought/exit signals; look for a new rash of buy signals on the next pullback in the .OEX.

FIGURE 3: OVERBOUGHT AND EXIT SIGNALS. The S&P 100 (.OEX) components issuing overbought and/or exit signals at the close of trading on Friday, September 7, 2012; 10% of all .OEX components fired overbought and/or exit signals at the close of the session, with no new buy 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 Regional Banks (IAT) and Networking (IGN) ETFs (Figure 4). There was also an overbought/exit signal in the iShares US Consumer Goods (IYK) ETF.

FIGURE 4: BUY SIGNALS. The exchange traded funds issuing buy signals at the close of trading on Friday, September 7, 2012. There was also one overbought/exit signal issued on Friday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX had a bit more follow-through on Friday, which was highly anticipated, according to several cycle studies. The sustained rally that began on June 4, 2012, is nearing completion, having another one to two weeks left to make its final bullish mark.

If you are going long any stock or ETF be sure to have an absolute stop-loss, trailing stop, and/or profit target in place and make sure all of your stops and targets are geared to capture short-term bullish surges with limited risk. The .OEX and .SPX can change direction without warning and will probably do so once this next multicycle high is finally in place. Trade wisely until we meet 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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