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TECHNICAL ANALYSIS


PENDY'S PICKS: September 11, 2012

09/11/12 08:51:30 AM
by Donald W. Pendergast, Jr.

The .OEX reversed course on Monday, confirming that its five-day price cycle has made a top; the 20- and 40-day cycles are still forecasting higher prices for the next one to two weeks, however.

Security:   .OEX, XOM, NWSA, TWX, EMC
Position:   N/A

The .OEX (Standard & Poor's 100) finished Monday's trading session at 656.12, closing down by 0.65%. The reliable five-day price cycle in the index has put in a peak, and prices might be soft for the next couple of sessions before the .OEX makes one final swing higher to complete the massive rally that inaugurated on June 4, 2012.

Figure 1 shows us the strongest four-week relative strength (RS) performers in the .OEX; Ford Motor (F) has been enjoying a solid rebound for five weeks but is now approaching the underside of its 200-day exponential moving average (EMA) even as its short-term and long-term money flows remain anemic.

Gilead Sciences (GILD) is riding a very nice uptrend, trading above its 21-, 50-, and 200-day EMAs but is displaying a very bearish price/money flow divergence on its daily chart. Existing longs should be running fairly close stops in this issue.

We see much the same situation in Eli Lilly (LLY). A wonderful uptrend is in progress even as the stock's money flow trend continues to disintegrate. Expect to see all three of these strong RS stocks take a hit once the .OEX tops in the next week or two.


FIGURE 1: ROC FOUR-WEEK
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; Emerson Electric (EMR) has been able to hold above critical support on its 21-, 50-, and 200-day EMAs and could be poised for another bounce higher; money flows are poor, however. A daily close below its 200-day EMA (near 49.00) would be especially bearish. 3M Co. (MMM) sold off hard on Monday, closing below its 50-day EMA; money flows are still positive, but the stock may still need to test its 200-day EMA (near 88.00) before rallying again.

FIGURE 2: OVERBOUGHT/EXIT SIGNALS. The exchange traded funds issuing overbought/exit signals at the close of trading on Monday, September 10, 2012; there were no buy signals issued on Monday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 are the S&P 100 components giving overbought and/or exit signals; 25 stocks gave overbought/exit signals; cycles analysis of the charts confirms that the .OEX has put in its latest five-day cycle peak. Note the range of stock industry groups represented; the defense, oil services, media, banking, insurance, entertainment, Internet retail, oil exploration/production, and computer software groups all made a showing here.

FIGURE 3: OVERBOUGHT AND/OR EXIT SIGNALS. The S&P 100 (.OEX) components issuing overbought and/or exit signals at the close of trading on Monday, September 10, 2012; 25% 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 were no buy signals; however, there were 13 overbought/exit signals in 33 ETFs that Pendy's Picks regularly tracks (Figure 4). Similar to the component stocks in the .OEX, these ETFs are also packed with stocks making five-day cycle highs of their own, and there should be another one to three days of sideways to slightly lower prices seen in most of these, too.

FIGURE 4: OVERBOUGHT/EXIT SIGNALS. The exchange traded funds issuing overbought/exit signals at the close of trading on Monday, September 10, 2012; there were no buy signals issued on Monday.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The .OEX reversed lower on Monday, September 10, confirming that its most recent five-day cycle peak is a done deal. Several higher-degree cycles are still confirming that the line of least resistance in the index is toward higher prices in the next one to two weeks. Existing longs should be using very strict loss-control strategies, preparing for the imminent turn southward by the .OEX and the majority of its component stocks. 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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