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Sunday, October 18, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Oct 16, '09

FTSE 100 index chart


In last week's analysis of the FTSE 100 index chart pattern, I had mentioned that to maintain the momentum of the bull rally, the index needs to make new highs. That is exactly what the FTSE did last week.

The index kept making new highs on decent volumes. But note what happened on Fri, Oct 16 '09. A new high of 5273 during the day ended with a lower close. A 'reversal day' pattern on good volume. The bears finally managed to stall the bull juggernaut.

Despite the smart rally and the new high, the index could not move above the up trend line joining the Jul '09 and Sep '09 bottoms. This gives another opportunity to investors for booking profits.

The three EMAs are moving up nicely and there is no immediate threat to the bulls. But all the technical indicators are showing negative divergences. This has been a feature of this bull rally - negative technicals have been swamped by a flood of liquidity time and again.

The slow stochastic is about to drop below the overbought zone and the %K is below the %D line. The RSI is above the 50% level but made a much lower top. So did the MFI, which has slipped below the 50% level. The MACD is positive but couldn't move above the signal line.

DAX index chart


The DAX index chart pattern continues to behave much like that of the FTSE. New highs followed by an end of the week 'reversal day' pattern on strong volume that halted the bull charge. EMAs are moving up, but the technical indicators are showing negative divergence. The only difference between the two charts is that the MACD managed to move above the signal line.

CAC 40 index chart


The CAC 40 index chart pattern is behaving a lot like its European neighbours, exhibiting similar patterns of new highs followed by a 'reversal day' on the highest volume of the week. Negative divergences are visible in the technical indicators. The 20 day EMA has flattened a bit, while the 50 day and 200 day EMAs are still moving up.

Bottomline? The chart pattern of the European indices looked bullish for most of the week. But the 'reversal day' patterns are casting  doubts about the continuation of the bull rally. Unless consumers start to spend, the underlying economy will remain weak. Profit booking recommended.

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