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Sunday, September 6, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Sep 4, '09

During last week's discussion of the stock index chart patterns of the European markets, I had mentioned that the bull rally was likely to continue a little longer. The FTSE 100, CAC 40 and DAX - all faced minor corrections. By the end of the week, the bulls seemed to regain control.

FTSE 100 index chart

FTSE_Sep409

The short-lived correction was well supported by the 20 day EMA. Though the index finished lower week-on-week, the bull rally continues with all three EMAs moving up together.

The technical indicators are showing signs of weakness. The higher volumes on down days and low volume on an up day signifies a rally that may soon run out of steam.

The RSI and MFI are both resting at their 50% levels, but are moving down. The slow stochastic has dipped below the overbought zone. The MACD has slipped below its signal line and is falling. It is time to exercise caution.

CAC 40 index chart

CAC_Sep409

The CAC 40 seems happy to play 'follow the leader' to the FTSE. But the French index corrected 2.5% whereas the FTSE was down by a little over 1%. The 20 day EMA provided support and the bull rally remains in tact for now.

The technical indicators have weakened since last week, with the volume pattern providing the same discordant note - higher volumes on down days and lower volume on the up day. That doesn't augur well for the bulls to retain control.

The RSI is just above the 50% level, but the MFI has fallen below. The slow stochastic has dropped from the overbought zone. The MACD is falling and has gone below the signal line.

DAX index chart

DAX_Sep409

The German index looks the weakest of the three indices, with the correction taking the DAX below the 20 day EMA three days in a row, before it closed just above the short-term average for the week. The week-on-week drop was 2.4%.

The same concern about the volume divergence means the bull rally may be nearing an end, even though all the three EMAs are still moving up.

The RSI and MFI are just below the 50% levels. The slow stochastic is resting on the 50% level. The MACD is falling and remains below the signal line.

Bottomline? The stock index chart patterns of the European markets are beginning to look a bit tired. Investors should maintain strict stop losses and start taking some profit off the table.

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