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Sunday, June 20, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Jun 18, '10

FTSE 100 index chart


In last week's analysis of the FTSE 100 index chart pattern, the increase in transaction volume and positive divergences of the technical indicators had hinted that the pullback rally could continue.

The bulls were able to overcome several important technical barriers, as the FTSE 100 had a second straight higher weekly close. The index moved above the 20 day EMA (which has started rising), the 200 day EMA (which didn't really fall during the correction), and the psychological 5200 level.

But the technical resistance from the 50 day EMA proved too strong for the bulls. The volumes were lower during the week, except on Friday. The index closed slightly lower on the highest volumes of this month.

Could it be a sign of 'distribution'? The RSI and MFI indicators are suggesting as much. Both are above their 50% levels, but turned down as the index moved above the 200 day EMA. The slow stochastic is in the overbought zone. The MACD is above the signal line, and rising in negative territory.

The FTSE 100 had 7 straight up days. It may consolidate for a few days before resuming the rally. But beware of a swift counter-attack by the bears.

DAX index chart


The German DAX index chart pattern continues to show bullish strength as it went past the psychological 6200 level and moved up to test the May '10 high of 6277. It fell just 20 points short. All three EMAs are rising with the index above them - a sign of a bull market.

But a technically important 'reversal day' pattern (higher high, lower close) on significantly higher volumes on Friday - not yet updated on the chart - may encourage the bears to launch an attack next week.

The negative divergences in the RSI and MFI may strengthen the resolve of the bears. The bulls will look at the MACD (which is above the signal line and rising in positive territory) and the slow stochastic (which is in the overbought zone) to conclude that all is well.

CAC 40 index chart


The CAC 40 index chart pattern was expected to ride on the bullish fervour and move above the 50 day and 200 day EMAs. The index did move above the 50 day EMA and tried to cross above the 200 day EMA. It did so on intra-day basis but closed just below it.

The CAC 40 had a higher weekly close for the second week in a row. More importantly, it had 8 straight up days and managed to close marginally higher on Friday on good volumes. Both the FTSE 100 and DAX indices closed slightly lower for the week.

The technical indicators are showing strength. The MACD is above the signal line and about to enter positive territory. The slow stochastic is in the overbought zone. The MFI is above the 50% level and climbing up. The RSI is also above the 50% level, but showing negative divergence.

Bottomline? The chart patterns of the European indices are swinging towards bullishness after 2 months of correction. Till the previous tops are overcome, bulls won't regain full control. Buy only what you know. This is not a time for experimenting with new ideas.

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