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Sunday, October 4, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Oct 2, '09

FTSE 100 index chart


The bull rally for the FTSE 100 index faced strong head winds last week, closing below the 20 day EMA for the first time since Jul '09. In the process, the up trend line connecting the two previous bottoms - in Jul '09 and Sep '09 - was broken. A pullback to the trend line can happen next week, and the opportunity should be used for profit booking.

Good volumes on four down days in a row (Sep 29, 30, Oct 1, 2) indicates that the smart money is exiting. The 20 day EMA has turned down. The 50 day EMA has flattened. The 200 day EMA is still moving up, and as long as the index stays above it, the bulls will try to fight back.

The technical indicators show that the bears have managed to gain the upper hand after a long time. The slow stochastic has dropped sharply from the overbought zone and is about to go below the 50% level. The RSI and MFI have both dropped to their 50% levels. The MACD has dropped sharply and is well below the signal line.

DAX index chart


The DAX index could not escape the wrath of the bears either, and also had four straight down days on good volumes. The up trend line joining the Jul '09 and Sep '09 bottoms was broken as well. The three moving averages look similar to those of the FTSE.

The 50 day EMA provided support to the index, but the technical indicators are looking more bearish and the medium-term average can get penetrated next week.

The slow stochastic has dropped below the 50% level from the overbought zone. Both the RSI and MFI have moved sharply below the 50% levels. The MACD is still positive, but below the signal line.

CAC 40 index chart


The CAC 40 index has fallen prey to the bears, much like its European neighbours. Four straight down days on good volumes, break of the up trend line, weak technical indicators - all point to a further continuation of the correction. Any pullback to the up trend line would be a profit booking opportunity.

Bottomline? The stock index chart patterns of the European indices seem to be correcting due to the 'Butterfly Effect' of the on-going correction in the Shanghai Composite index. A fall below the 200 day EMA could send the indices back to a bear market.


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N said...

Interesting blog as always. The technicals seem to point to a correction in both the US and UK indexes. However there has been a suggestion that some big fund managers were caught out by the summer upturn. To avoid red faces and ensure they have some profits to show their clients, funds are still using every dip as a buying opportunity, which could be sustaining the upward trend despite the technicals and the mixed economic data.
The market corrected slightly last week on poor US data, but it's moving up again this week. Looking at the FTSE one would think that the market is immune from bad news at the moment! Do you have a view on why this is or what is happening?

Subhankar said...

@t3: Thanks for your comments.

@N: Up trend line joining the Jul '09 and Sep '09 bottoms was broken recently. A fight back by the bulls was expected, with a pullback towards the trend line from below. The lower volume on an up day (Oct 5 '09) shows lack of buying conviction. Technically, this pullback is an opportunity to sell.

Liquidity - specially of the recently printed variety - can overwhelm technicals in the short term.