Today I used my general Price Momentum Oscillator (PMO) scan to find my "diamonds in the rough." As it turned out, there were only ten results, which tells me that it may not be the best time to take on new longs. However, these stocks are showing some positive characteristics. Interestingly, two came from the Industrial sector and two came from the Healthcare sector. The final choice (which happens to be one of my MarketWatchers LIVE "Monday Setups") is a Financial.
Welcome to the "DecisionPoint Daily Diamonds", a newsletter in which we highlight five "diamonds in the rough," taken from the results of one of my DecisionPoint scans. Remember, these are not recommendations to buy or sell, but stocks that I found interesting. The objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest. There are no guaranteed winners here.
To begin each newsletter, I share the "Silver Cross" indicator, which tells us the percentage of stocks on IT Trend Model BUY signals (20-EMA is above the 50-EMA) in the SPX. Additionally, the "Golden Cross" indicator plots the percentage of stocks on LT Trend Model BUY signals (50-EMA is above the 200-EMA). It is important to know the health of the overall market before you think long.
Current Market Conditions:
Silver Cross: 53% on ITTM Buy Signals (rising from yesterday's 50.3%)
Golden Cross: 60.8% on LTTM Buy Signals (same as yesterday)
Note the market is in a rising trend - all DP Trend Models are on "BUY signals" for SPX. Momentum is rising, with the PMO on a BUY signal. The PMO recently moved above the zero line, which is a sign of internal strength.
Of the 10 results I got today, I narrowed it down to these five:
MCK: I'll admit that this is probably my least favorite of the five (now that I've said that, watch it take off tomorrow!). It is just now retesting the bottom of an intermediate-term rising trend channel. Carl and I have noticed that this area of the market is showing strength. The PMO is flattening, which, after a big decline, is not a surprise. The OBV could be a problem. We have rising tops, but this last top was well below the price top, which tells us that, despite heavy volume, it isn't moving like it probably should. I still think it is worth watching, though.
MCRN: A declining trend was recently broken on this stock. I also note in the thumbnail that today's rally broke above the previous 3-day tops. We had a ton of distribution on this stock in July/August, but accumulation appears to be taking place now. The OBV looks great, which confirms the recent rise. SCTR is also making a comeback.
NEOG: Here, we have an ascending triangle with a successful breakout. It is far from decisive (3%+), but the PMO looks good and the OBV is very healthy, given the breakout from a declining trend this.
ODFL: Transports are beginning to rally, and ODFL rallied big time today. The close is also the highest we've seen in months. It is likely a little early for this one, as it is a "runner" and I don't like to "chase" runners. I am looking for a pullback to the breakout point from the declining tops trend line. The SCTR looks great.
OMF: This stock executed a double-bottom formation. The expected upside target is just below overhead resistance at the August top, but my target would be that overhead resistance line. Look at the great OBV positive divergence. SCTR has been strong for some time; I'm looking for a pullback toward the confirmation line before I would pull the trigger.
Final Thoughts: I will be watching OMF on the open tomorrow. I was recently stopped out (and took gains) within my portfolio; I'm currently about 60% cash, 30% defensive, 5% aggressive. To clarify, "defensive" means from the defensive sectors of the market. "Aggressive" implies investments in aggressive sectors.
Watch the latest episode of DecisionPoint with Carl & Erin Swenlin LIVE on Mondays 5:00p EST or on the StockCharts TV YouTube channel here!
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
erinh@stockcharts.com
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "diamonds in the rough".
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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