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TECHNICAL ANALYSIS


PENDY'S PICKS: September 5, 2012

09/05/12 08:49:28 AM
by Donald W. Pendergast, Jr.

The .OEX closed a tiny bit lower on Tuesday; cycles analysis suggests that one more thrust higher by mid- to late September is due.

Security:   .OEX, BHI, HAL, OXY, SLB
Position:   N/A

The .OEX (Standard & Poor's 100) finished Tuesday's trading session at 645.55, closing down by 0.13%. As mentioned previously, 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 in force. 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; eBay (EBAY) may be getting a bit ahead of itself, as long-term money flow has been diverging from price for many weeks now. Its mid-July 2012 gap may actually be of the exhaustion variety, warning of a major correction ahead. Amazon.com (AMZN) is also looking a bit too bullish, given its negative price money flow divergence; the stock may join the rest of the .OEX on one final thrust higher this month, followed by a nasty selloff lasting into October 2012.

United Health Group (UNH) has been able to stay above its 200-day exponential moving average (EMA) for a couple of weeks now. Short- and long-term money flows are positive; a pullback to that EMA might provide a nice tradable bounce.


FIGURE 1: STRONGEST COMPONENTS. The 10 strongest S&P 100 (.OEX) components over the past month, as of Tuesday, September 4, 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; here we find that some of the key players in the oil services/oil exploration and production industries have found a new home on the weak RS list. All of these stocks have made deep corrective moves in the last two weeks; HAL and BHI made successful tests of support on Tuesday, possibly indicating that a minor bounce is due soon.

Expect crude oil and gas pump prices to fall over the next three to four weeks, dragging these stocks even lower. Caterpillar (CAT) printed a wide-range, bearish daily price bar on Tuesday; long-term money flow is poor, and it's possible that CAT will easily fall to major support near 78.25 very soon.

FIGURE 2: WEAKEST COMPONENTS. The 10 weakest S&P 100 (.OEX) components over the past month, as of Tuesday, September 4, 2012.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving buy signals. There is only one new buy signal -- Union Pacific (UNP) -- and there are two exit signals, one for Lowe's (LOW) and the other one for Starbucks (SBUX). Railroad stocks should be helped by any sustained decline in the price of crude oil, so UNP could be offering even more swing trading opportunities in the next few months.

FIGURE 3: BUY SIGNALS. The S&P 100 (.OEX) components issuing buy signals at the close of trading on Tuesday, September 4, 2012; 1% 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, there were no buy or sell signals issued at all on Thursday. Expect that to change quickly, given the anticipated increase in volatility that should be seen in September and October 2012!

The .OEX closed slightly lower on Tuesday, completing a minor test of intraday support in the process. Pendy's Picks is still expecting to see one more rally attempt -- one that should terminate between September 14 and September 21, 2012. Only skilled, nimble traders should be attempting to trade aggressively from the long side between now and the latter half of this month. 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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