Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Jan 15, '10

FTSE 100 index chart

In last week's analysis, I had mentioned that the FTSE 100 index chart pattern hadn't quite cleared the hurdle of the 61.8% Fibonacci retracement level of 5500, despite closing above it for four straight days.

On Monday, Jan 11 '10, the index made a new high of 5600 and closed above the 5500 level for the fifth straight day, but on lower volumes. Just when it seemed that the bulls were unstoppable, the bears mounted a swift counter-attack.

The FTSE 100 closed below the 5500 level four days in a row. The spike in volumes on Friday, Jan 15 '10 pushed the index down to the 20 day EMA, but the support from the short-term moving average held firm.

The technical indicators have weakened, and continues to show negative divergence. The RSI has dropped from the overbought zone. So has the slow stochastic - but both remain above the 50% levels. The MFI is also above the 50% level but is moving down. The MACD is falling and has gone below the signal line.

All three EMAs are still moving up and the index remains above them. So the bull rally is still under no threat. But some more correction could be in the offing.

DAX index chart

The DAX index chart came under a bear attack as well, and almost tracked the FTSE 100 in its movements. The German index made a new high of 6094 on Monday, Jan 11 '10, and closed above the 6000 level for the sixth day in a row.

The bears spoiled the party somewhat, and the index closed below the 6000 level on four consecutive days. The large volume on Friday, Jan 15 '10 pushed the index down below the flattening 20 day EMA.

The technical indicators have weakened quite a bit. The RSI has moved down towards the 50% level. The MFI is following suit. The slow stochastic has slipped below the 50% level. The last time it did that was during the sharp correction in Oct '08. The MACD is dropping and is below the signal line. Looks like the bears aren't quite done yet.

CAC 40 index chart

The CAC 40 index chart managed to fend off the bears a little better. The index clung on to the 4000 level throughout the week, before falling below it on Friday on higher volumes. The French index made a new high of 4088 on Monday, Jan 11 '10.

The technical indicators look similar to those of the FTSE 100. The RSI has dropped from the overbought zone but remains above the 50% level. The MFI and slow stochastic are falling towards their 50% levels. The MACD is positive but below the signal line.

The 20 day EMA has supported the index fall and all three EMAs are moving up with the index above them. The bull rally is still going strong.

Bottomline? The European index chart patterns are facing some correction. Such phases are good for the continuation of the bull rally. Things could change fast if the bears can continue their selling spree. Keep tight stop-losses, but stay invested.