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Monday, August 24, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Aug 21, '09

Quite a contrast! The stock index chart patterns of the Asian markets were in a corrective mode last week, but the European markets seemed to shake off their depression and charge up with renewed vigour.

FTSE 100 index chart


The FTSE seemed to give up on its bull market dreams in early Jul '09 and went below all the three moving averages - almost re-entering the bear market. Why almost? Note the confluence of the 20 day EMA and the 50 day EMA.

The short-term average bounced off the medium-term one, and the index literally charged up into a new bull market, dragging the 20 day EMA and 50 day EMA with it. The volumes have not been that great - which means the bull market is not receiving much buying support.

The slow stochastic did a quick turn from the oversold zone to the overbought zone. After a brief lull, it is heading back to the overbought zone. The RSI and MFI both entered overbought zones but have moved down. Both indicators are showing negative divergence with the index. The MACD has flattened and just touching the signal line.

DAX index chart


The DAX index seems to be moving in lock-step with the FTSE, but looks slightly less bullish. A close look at the technical indicators will reveal why.

The slow stochastic fell a bit more and is just above the 50% level. The RSI is at  its 50% level, while the MFI is just above the mid-point. The MACD is positive but below the signal line.

CAC 40 index chart


The CAC 40 index pattern seems more like the FTSE chart and more bullish than the DAX chart. But appearances can be misleading. The technical indicators are resembling the FTSE ones with one exception. The 50 day EMA is yet to move above the 200 day EMA - though that should happen next week.

Bottomline? The news about European markets coming out of the recession soon acted as a tonic. All three index chart patterns are showing strong bullish signs. But the negative divergences from the technical indicators remain a concern. Buying should be limited to well-selected stocks only. Partial profit booking is also encouraged.

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