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Tom Aspray, professional trader and analyst was originally trained as a biochemist but began using his computer expertise to analyze the financial markets in the early 1980s. Mr. Aspray has written widely on technical analysis and has given over 60 presentations around the world. Many of the... More
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Charts in Play
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    Feb 11, 2013 3:02 PM | about stocks: SPY, QQQ, VLO, PXD, DIA

    he strong run-up for stocks in January, renewed prospects for political brinksmanship in Washington, and the crisis du jour in Europe seem to have given market participants pause, and MoneyShow's Tom Aspray reassess the current landscape and plans the next moves.

    Even though last Friday's action was quite positive, the Dow Industrials tracking Spyder Diamond Trust (DIA) closed a bit lower for the week while the Spyder Trust (SPY) and PowerShares QQQ Trust (QQQ) managed gains of 0.5% and 0.4% respectively. The Dow Transport has continued to lead the pack, gaining 0.94% for the week.

    Over the past week, the number of analysts and financial columnists looking for a correction has grown significantly. I started becoming more cautious on the market at the end of January due in part to the high bullish sentiment at the time, as well as the seasonal tendency for stocks to correct in February.

    Though the now crowded correction camp does not mean that stocks won't correct, it does increase the chances that stocks will first see another surge to the upside. As I noted in The Week Ahead column, the tech sector could fuel another push to the upside as the QQQ and XLK acted well on Friday.

    For now, I will continue to stick with my game plan, that is take profits on some of the open positions in the Charts in Play portfolio and raise my stops. Since the last portfolio update, five stocks have reached my initial profit-taking levels while others have been stopped out. I would like to focus today on two recommendations that have worked out well and two others that were stopped out.


    Click to Enlarge

    Chart Analysis: Valero Energy Corp. (VLO) has had a great run to the upside since it was recommended November 7.

    • The weekly chart shows that VLO has closed well above the weekly starc+ bands for the past two weeks.
    • VLO is also well above the monthly starc+ band at $43.60.
    • The 50% Fibonacci retracement resistance at $46.18, which is calculated from the 2007 high at $78.68 has now been reached.
    • The 61.8% resistance level is at $54.31.
    • The long-term chart shows that the breakout level, line a, was retested last fall before prices surged.
    • The relative performance broke out of its trading range in November after bottoming earlier in the year.
    • The weekly OBV broke through resistance, line c, last July and has clearly confirmed the recent price highs.
    • The monthly and daily OBV are both positive with no signs yet of a daily top.
    • There is first support now at $44 with further in the $43-43.40 area.

    Pioneer Natural Resources (PXD) was a more recent recommendation in the energy sector that was made just before the end of 2012.The weekly chart shows that the triangle or flag formation, lines d and e, was completed in the middle of January.

    • Last week's close was near the weekly starc+ band with the 127.2% Fibonacci target at $131.26.
    • The monthly starc+ band is at $134.93 in February.
    • A long-term trading range that goes back to 2011 has now been completed with long-term targets in the $160-$165 area.
    • The weekly relative performance broke its downtrend, line f, last fall and has accelerated to the upside.
    • The weekly OBV has been above its WMA for the past three months and is now testing its downtrend, line h.
    • The monthly OBV (not shown) looks much stronger as it has made convincing new all-time highs.
    • There is initial support now at $122-$124 with stronger at the monthly pivot, which is at $116.23.

    chart
    Click to Enlarge

    L 3 Communications Holdings (LLL) was recommended in early November as it bottomed in the middle of November at $71.91 and hit a high of $79.80 in January.

    • The reversal from the highs was quite sharp as LLL closed below its uptrend, line a, and the 20-week EMA.
    • More importantly, the nine week lows were also broken the week ending February 1st.
    • Sharp rebound last week as it appears support in the $74 area is holding.
    • The relative performance dropped below its WMA three weeks ago and then broke its uptrend, line c, the week our stop was hit.
    • The deterioration in the daily RS line (not shown) warned of weakness before the highs
    • The OBV turned lower from resistance at line d, and is back below its WMA
    • There is resistance now in the $78-$80 area.

    Northrop Grumman Corp. (NOC) was a pre-Christmas stock stuffer that did not pan out as expected.

    • NOC tested its slightly rising weekly EMA before dropping sharply two weeks ago.
    • The lows of the past eight weeks were broken and NOC made further new lows last week at $64.35.
    • The weekly uptrend, line e, has decisively been broken.
    • The relative performance formed lower highs in January, line f, and then broke its support in the middle of January.
    • The RS line has dropped to significant new lows.
    • The OBV broke its downtrend, line h, in December but then did not make much upside progress.
    • Now the weekly OBV is acting better than prices as it has turned up from its WMA.
    • The quarterly pivot at $67.41 is not the first key level of resistance.

    What it Means: For Valero Energy Corp. (VLO), I stuck with my original plan and sold ½ the position at $35.98 in mid-January and I will also be looking to take some profits in Pioneer Natural Resources (PXD), which is now close to my first upside targets.

    For L 3 Communications Holdings (LLL) and Northrop Grumman Corp. (NOC), my stops were too wide as I thought they were out of harm's way. In hindsight, the deterioration in the daily relative performance did give some warnings.

    How to Profit: No new recommendation

    Portfolio Update: Should be long Valero Energy Corp. (VLO) from $29.27. Sell 1/3 of the position at $47.44. Use a stop at $42.90.

    Should be long Pioneer Natural Resources (PXD) at $104.85 with a stop at $15.34. Sell half at $131.96 or better.

    Longs in L 3 Communications Holdings (LLL) from $74.24 were stopped out at $74.54.

    Longs in Northrop Grumman Corp. (NOC) from $67.62 were stopped out at $65.48.

    NEXT PAGE: The Charts in Play Portfolio

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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