Sunday, September 13, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Sep 11, '09

The stock index chart patterns of the European markets were looking a bit tired when I had looked at them last week, thanks to the negative divergences in the technical indicators following a bout of minor correction.

It was a brief pause, as the bulls had regained control and began another charge with renewed vigour. The indices ended last week at new highs.

FTSE 100 index chart


The FTSE led the charge, and pulled the three EMAs upwards. But the volumes continue to be a worry. Much lower volume on Mon, Sep 7 '09 which was an up day; highest volume of the week on Thu, Sep 10 '09 - a down day.

On the longer term (2 years weekly) chart pattern of the FTSE, a bearish 'rising wedge' is clearly visible, which indicates that an intermediate top may be close at hand.

The RSI went up close to the overbought zone before dipping a little. The MFI didn't make it that far, but remains above the 50% level. The slow stochastic has re-entered the overbought zone. The MACD has moved up  and is just above the signal line.

The technical indicators have improved over the previous week, which means that the bulls may continue their party a while longer.

CAC 40 index chart


The CAC 40 is following in the footsteps of the FTSE 100 Index, the notable difference being higher volume on Fri, Sep 11 '09. A 'rising wedge' has formed in the French index as well, ever since the Jul 13 '09 low of 2958.

The technical indicators look a little weaker than FTSE's. The RSI is just above the 50% level. The MFI is resting on its 50% level. The slow stochastic has entered the overbought zone. The MACD has moved up and is touching the signal line. An improvement over the previous week, but nowhere near the joyous bullishness being shown by the index.

DAX index chart


The German index had a much sharper up move - just look at the higher slant of the week's trading pattern. But the higher high and higher close on Fri, Sep 11 '09 was on lower volume. All three EMAs are continuing their upward journey.

Both the RSI and MFI are above the 50% level but did not move up with the index. Negative divergences like these will put a rein on the rampaging bulls. The slow stochastic has entered the overbought zone. The MACD has moved up and above its signal line, but it is making lower tops as the index is making higher ones. Clear signs of a bull rally driven more by liquidity and less by fundamental and technical underpinnings.

Bottomline? The stock index chart patterns of the European markets are confirming an old saying: markets can remain irrational longer than investors can remain solvent. Caution and profit booking advised.

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