Sunday, December 20, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Dec 18, '09

FTSE 100 index chart


The battle between the bulls and bears is getting really interesting. The bears are pressing sales at every rise, and the bulls are fighting back every time the FTSE 100 index comes near the 50 day EMA.

The massive increase in volumes on Friday with the index closing at its low for the day and the week is a sign of buying exhaustion, which may finally tilt the scales in favour of the bears.

The technical indicators don't signal a Santa Claus rally. The RSI and MFI have both dipped below the 50% level. The slow stochastic is at the 50% level and headed down. The MACD is barely positive and below the signal line.

Watch the Nov 27 '09 low of 5104. A breach of that level can take the FTSE 100 index below the 5000 level.

DAX index chart


The DAX index chart is looking bullish compared to the faltering FTSE 100. The index actually made a new high of 5903 on Dec 16 '09, but could not sustain at the higher altitude.

The huge volumes on Friday turned out to be a 'reversal day' as the DAX index made a higher high but a lower close than on Thursday (Dec 17 '09). This is a sign of buying exhaustion, so be prepared for a bear attack.

The slow stochastic is in the overbought zone, but about to drop down. The MACD is positive and just above the signal line - but showing negative divergence, failing to make a new high. Negative divergences are also visible in the RSI, which is above the 50% level but falling and the MFI, which has dipped below the 50% level.

The bulls can take heart from the three EMAs which are still rising, with the index above all three moving averages.

CAC 40 index chart


The CAC 40 index chart also shows a 'reversal day' pattern on Friday on very high volumes, with the index closing at the lowest point of the day and the week.

The slow stochastic has dipped from the overbought zone. The MACD is still positive and above the signal line. The RSI and MFI are both above their 50% levels but falling.

The 20 day EMA provided good support during the week, but has flattened. The 50 day and 200 day EMA are both still rising but the upward momentum has slowed down considerably.

Bottomline? The European index chart patterns show that the bulls haven't given up the fight, but the bears are gaining ground. Some more sideways consolidation with a downward bias can be expected.


Jasi said...

Subhankar Sir! I have a question. Lets say someone has some x amount to be invested thruout or for year 2010. Now, chances are very good that 2010 will end up much higher that current levels.
Then, does it make sense to go via SIP? Or lumpsum, which in turn could be distributed. I know investing lumpsum would mean one is trying to time the market, but isnt the guess worth higher returns?

Subhankar said...

The thumb rule is: if you have a lump sum amount to invest, invest it all; if you have monthly savings, follow a SIP or a Value-averaging plan.

If you want the best of both worlds with minimum risk, invest the lump sum in a Post Office MIS @8% and use the monthly interest amounts to SIP into an index fund.

Jasi said...

Oh wow! Dint expect that. Im a bit scared now ;) and confused.
I thought ppl use SIP to avoid the need of timing the market so that they get exposure to most of the points.
Lumpsum can get risky in case u end up investing at a relative high.
So ru suggesting to invest in lumpsum ALWAYS as long as one has it?

Subhankar said...

If you are confused and unsure about investing a lump-sum in the stock market at this stage, don't do it.

Invest in a bank FD or a liquid MF, and only use the interest/dividend to SIP into an index fund. Your principal will remain immune to market fluctuations.

When the Sensex hits 30000 or 50000 a few years from now, whether you invest at 17000 or 13000 will be unimportant.;)

Jasi said...

Sorry for the confusion ... as far as investing is concerned im VERY SURE! :)
But what I was wondering was the relative merits of SIP and/or lumpsum investment.
From wherever Ive read, SIP had been preached as a best practice of entering into the market. This is what stumped me when you advised a lumpsum entry.

Jasi said...

for example this post ...

Subhankar said...

SIP is supposed to continue for a long period. The BusinessLine article mentions an investment period of 2 months for cost averaging. Which is neither here nor there.

I'm not a great proponent of SIP - except for new investors, or those who can't pick their own stocks/funds.

SIP is a myth propagated by fund managers because it helps them with steady cash inflows. For investors, it works only when markets move sideways.

Jasi said...

Hmmm, interesting! It makes a lot of sense now.
Plus I guess if one goes for SIP, the rest of his cash lies idle not generating any money at all.
Can you please throw some light on Systematic Transfer Plan (STP) and its use with a liquid fund?

Subhankar said...

Leave instructions with your fund/bank by filling up a STP form and a fixed amount will get transferred from your liquid fund/savings account at designated times.

A liquid fund will earn about 4-4.5% and if you opt for the dividend option, it will add to your cash flows.

Jasi said...

You I just finished reading your article on SIP and my word! what an eye opener.
Makes us realize that how at times we consider a lot of things sacrosanct without pausing a while and giving it a lil thought!
There are so many great posts you have that I want to get back to n read again n again. But my problem is, that number just keeps increasing everyday and I'm starting to lose count. :P
But im sure thats one trouble I can live with.
Awesome ... just keep the good work up sir!


Subhankar said...

Appreciate your kind words, Jasi.

Some of my earlier articles are being updated and compiled into an eBook. Please stand by.

Unknown said...

Subhankar Da,

Shubh Prabhatam.

It is indeed a great pleasure to know that some of your earlier articles are being updated and compiled into an eBook.

I am sure every member of this Blog will anxiously look forward to get that E-Book.

Cheers and please continue the good work by posting such informative/educational articles.

N K Rana

Subhankar said...

Appreciate your comments, Narinder.

The festive season hasn't provided too much time to work on the eBook, but I do plan to launch it in Jan 2010.