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TECHNICAL ANALYSIS


PENDY'S PICKS: July 30, 2012

07/30/12 12:24:21 PM
by Donald W. Pendergast, Jr.

The .OEX rocketed higher on Friday as the indexes' key price cycles begin to reexert control.

Security:   OEX, SPY, KO, AMZN, NSC
Position:   N/A

The .OEX (Standard & Poor's 100) finished Friday's trading session at $637.17, surging upward by 1.80%. The 34-week cycle in the .OEX is clearly the main driver undergirding the complete bullish rise since early June 2102 and is not anticipated to top for another three to four weeks. A new RMO (Rahul Mohindar) swing buy setup signal also fired in the .OEX at the close of trading on Friday, and a rise above $638.57 will actually constitute a long entry trigger.

Figure 1 show us the strongest four-week relative strength (RS) performers in the .OEX. Sprint Nextel (S) continues to strengthen and is still occupying the top RS slot, with Walgreen's (WAG) currently in second place. Oil exploration/production and oil services stocks still make up 50% of our top 10 RS list; HAL, BHI, NOV, SLB, and WMB look all the more attractive as potential covered-call (CC) setups now, especially with the broad markets kicking in to bullish overdrive mode -- probably throughout August.

Keep an eye on health-care sector advances as the .OEX turns up, and since we still have three of them in our top 10 list -- WAG, BAX, and AMGN -- it might pay to also check these issues out as potential CC candidates, too.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Friday, July 30, 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; there isn't much in the way of change here, as weak stocks tend to remain weak longer than strong stocks stay strong (or so it seems at times). Bank of America (BAC) remains perched atop the weak RS list, with investment banking giant Morgan Stanley (MS) also continuing to trail the .OEX over the past month.

United Health Group (UNH) continues to work its way higher in the weak rankings while the big three tech issues on our list (DELL, HPQ, and CSCO) confirm the ongoing weakness of certain large-tech issues.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Friday, July 30, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving RMO swing buy setup signals; 21% of the .OEX components issued new RMO swing buy signals on Friday; there were no new swing sell setup signals to report. This is the largest number of swing buy setup signals issued since the launch of Pendy's Picks six weeks ago, and if the majority (75% or more) manage to rise above their respective highs made on Friday, then this rally is really going to start cranking higher.

The new upswing in the index is expected to be at least twice the length of the last two minor upswings since June 25, 2012, with a nominal target price of approximately $650.00 to $660.00 before the 34-week cycle finally peaks and then rolls over. Note the variety of sectors and groups represented in this buy setup list; energy, retail, utilities, big pharma, biotech, media, transportation, tech, real estate, manufacturing, financial, and leisure/entertainment are all at this party, confirming the broad-based nature of this bullish break higher in the .OEX.

FIGURE 3: SWING BUY SIGNALS. The S&P 100 (.OEX) components issuing RMO swing buy signals at the close of trading on Friday, July 30, 2012; 21% of all .OEX components fired buy setup signals during this session, with no new sell setup signals being issued.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Five exchange traded funds (ETFs) flashed swing buy setup signals on Friday; the iShares Consumer Goods (IYK), Utilities (IDU), Regional Banks (IAT), Global Consumer Discretionary (RXI), and SPDRs Large Cap (SPY) ETFs fired swing buy setup signals. A rise above their respective highs on Friday triggered new long trades in each of these ETFs; there were no swing sell setups in any of the ETFs that Pendy's Picks regularly follows. See Figure 4.

FIGURE 4: SWING SELL SETUPS SIGNALS. The ETFs that fired new RMO swing sell setup signals as of the close of trading on Friday, July 30, 2012; there were no new RMO swing sell setup signals on Friday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX surged even higher during Friday's trading session, with a new, important RMO swing buy setup signal firing in the .OEX and .SPX. If both indexes can break and then close above their respective highs made on Friday, expect the investing public to take notice and start buying more heavily. The current price target for the .OEX is now between $650.00 and $660.00, probably occurring within the next three to four weeks, after which we should anticipate the possibility of a substantial correction of the entire move up from the June 4, 2012, lows. As always, 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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