Cooperman's Top Three Picks

05/30/2013 10:00 am EST


Thomas Aspray

, Professional Trader & Analyst

The market’s modest pullback could be viewed as either the start of a more significant correction or just a rest before the next leg up, and MoneyShow’s Tom Aspray takes a technical look at a renowned hedge fund manager’s holdings for good buying opportunities.

After another weak open, the stock market attempted to rebound in the afternoon but for a change the rally fizzled as stocks finished lower across the board. The housing sector was hit particularly hard as were the utilities, which were featured earlier in the week.

Though the NYSE Composite lost only 0.75%, the market internals were actually weaker as only 885 stocks advanced while 3182 declined. As I noted yesterday, such numbers have further weakened the technical outlook from the A/D lines.

Japanese stocks were hit hard overnight as the Nikkei 225 lost over 5%, but in early trading, the European markets and stock index futures are a bit higher. The close this week will be the key as a close below last week’s lows will be more negative.

Many traders and investors closely watch what some of the big name investors and hedge fund managers are buying and selling. A recent Barron’s article focused on legendary hedge fund manager Leon Cooperman who runs the Omega Partners hedge fund. Since 1992, this fund has had an average “annual return after fees of 14.3%.”

In his interview, Cooperman expressed a long-term bullish outlook but suggested that the “market seems a bit stretched.” I have found it interesting to look at some of the top managers’ stock picks from a technical perspective as their research is often quite good and they have deep enough pockets to ride out most corrections. These corrections can, of course, often create some good opportunities.

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Chart Analysis: The daily chart of the Spyder Trust (SPY) shows that it came close to its 20-day EMA at $164.04 as the day’s low was $164.34.

  • The daily starc- band is now at $162.58 with next strong support at $159.80.

  • The daily uptrend, line a, is now at $157.66 with the 38.2% Fibonacci support at $155.94.

  • The daily OBV dropped below its WMA last week and is close to starting a new downtrend.

  • There is next good OBV support at the March highs and then the uptrend, line b.

  • The S&P 500 Advance/Decline has dropped back below its flattening WMA and negative breadth today will confirm that the market is in the top-building process.

  • The A/D line has good support at the April highs and the uptrend, line c.

  • There is resistance now at $166.40 to $167.78.

Citigroup Inc. (C) is a Cooperman favorite as it made a new 52-week high at $52.89 last week.

  • The stock is well above the March high at $47.92 and the rising 20-week EMA is at $45.72.

  • Currently, the major 38.2% Fibonacci support is at $40.72 with additional support at $38.72.

  • The weekly on-balance volume (OBV) broke through its resistance, line e, in April and is well above its rising WMA.

  • The relative performance completed its bottom formation in late 2012 as it overcame resistance at line g.

  • The RS line is holding above its uptrend (line h) and its rising WMA.

  • The weekly starc+ band (not shown) was tested three weeks ago and for next week is at $54.96.

NEXT PAGE: 2 More Cooperman Picks


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Sprint Nextel Corp. (S) is his largest holding and is the target of a bidding war between Dish Network (DISH) and the Japanese company Softbank. Cooperman expects the price to at least reach the $8 level. This is over 10% above current levels.

  • For June, the monthly starc+ band should be near $7.92.

  • The weekly technical studies are positive as Sprint gapped through the 2011 highs, line a, six weeks ago.

  • The bottom formation was completed in early 2013 as resistance at line b was overcome.

  • The bottom was confirmed by the relative performance as it overcame its resistance at line c.

  • The RS line made new highs last week.

  • The OBV moved through its year-long resistance, line d, in July 2012.

  • The OBV is well below the 2011 highs but is lagging the price action.

  • There is support at $6.50-$7.00.

Transocean Ltd. (RIG) is favored because it is the major ultra-deep water driller. I recommended it on April 9 as it is also a favorite stock of Carl Icahn.

  • RIG made a new rally on May 17 at $55.79 before it reversed to the downside and is down 6.7% from the recent high.

  • It is trying to hold above the support in the $ 50 area, which is the monthly pivot.

  • There is further support now in the $48 area and then just below $47, line f.

  • The daily relative performance shows a potential bottoming formation, lines g and h.

  • The RS line needs to move above the resistance at line g to complete a bottom.

  • The OBV made a significant new high in May but has now pulled back to support at line i.

  • There is initial resistance now in the $53.40-$54 area.

What it Means: From a technical perspective, the action over the next two days and the weekly close will be very important. The deterioration in the daily A/D lines suggests that we are in the top-building process. This does not mean that we can’t see a rebound back towards the highs before there is heavier selling.

As for Copperman’s holdings, I will be watching for a significant pullback in Citigroup Inc. (C) as a buying opportunity. I am watching Transocean Ltd. (RIG) closely as my initial profit-taking level was not reached.

How to Profit: No new recommendation

Portfolio Update: For Transocean Ltd. (RIG), we are 50% long at $49.54 and 50% long at $48.84, with a stop $49.53.

Per yesterday’s column and tweet, we sold half of our positions on the opening in iShares MSCI Indonesia (EIDO) at $35.46, half of Stericycle Inc. (SRCL) at $110.59 (it closed at $108.66), and half the position in Dillard’s, Inc. (DDS) at $93.02.

Per yesterday’s column and tweet, we sold half of our positions on the opening in iShares MSCI Indonesia (EIDO) at $35.46, half of Stericycle Inc. (SRCL) at $110.59 (it closed at $108.66), and half the position in Dillard’s, Inc. (DDS) at $93.02.

NEXT PAGE: This is the current Charts in Play portfolio.

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