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Sunday, May 9, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - May 7, '10

FTSE 100 index chart


In last week's analysis of the FTSE 100 index chart pattern, I rang the warning bell by making the following statements:

  1. The bull juggernaut is now running on an empty tank.
  2. The technical indicators are all bearish.
  3. A further fall next week can take the index down towards the 200 day EMA.

The FTSE 100 succumbed to a global sell-off and not only fell below the 200 day EMA but also below the psychological 5200 level (chart has not been updated with Friday's trade). The index closed at 5123 on strong volumes, and lost 430 points (7.7%) on a weekly basis.

Bulls may think they still have a chance to recover, since the FTSE 100 index stopped short of going below the Feb '10 low of 5061. But the sharp drop on strong volumes is an indication that the worst isn't over.

One look at the technical indicators should scuttle all bullish hopes. All three EMAs are moving down with the index below them. The slow stochastic, RSI and MFI have all entered their oversold zones. The MACD is falling rapidly in negative territory and is well below the signal line.

Shorts can be opened on a fall below the Feb '10 low of 5061, but with appropriate stop-losses. Watch for supports at 4950 (Aug '09 top) and 4550 (Jun '09 top) if 5061 gets broken. Any upward bounce can be used to sell.

DAX index chart


The German economy is the strongest in the Euro-zone. That doesn't mean the DAX index chart did not face a bear hammering. In spite of a sharp fall on increasing volumes during the week, the index did manage to get support from the 200 day EMA.

The technical indicators are looking quite bearish. The 20 day and 50 day EMAs are falling with the index below them. The slow stochastic is in the oversold zone. The MFI is at the edge of the oversold zone. The RSI is below the 50% level. The MACD is below the signal line and has entered the negative region.

The DAX index has lost 420 points (6.9%) on a weekly basis and is likely to drop below the 200 day EMA next week, and then go down to test the Feb '10 lows.

CAC 40 index chart


The chart pattern of the CAC 40 index is the worst off among the three. It closed the week at 3393 - 425 points (11.1%) lower on a weekly basis on increasing volumes. In the process, it fell below the 200 day EMA, the psychological 3400 level and - most important of all - below the Feb '10 low of 3546.

All three EMAs are falling with the index below them. The 20 day EMA is on the verge of crossing below the 200 day EMA. Once the 50 day EMA follows suit, the bear market in the CAC 40 index will be confirmed.

The slow stochastic is well inside the oversold zone. The RSI and MFI are about to enter their oversold zones. The MACD is below the signal line, and falling in negative territory.

Bottomline? The chart patterns of the European indices are in strong bear grips. Ten weeks of steady gains have disappeared in two weeks of selling. That is the nature of bull and bear cycles. Remember that you make money by selling in a bear market and buying in a bull market. That means any pull backs should be used to sell.

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