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Sunday, June 27, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Jun 25, '10

FTSE 100 Index Chart

The 50 day EMA stalled the bull rally in the FTSE 100 index chart - and how! I had mentioned the possibility of a swift counter-attack by the bears, mainly because of the high-volumes on Friday. Looks like the extent of the BP oil spill disaster and the inability of the company to redress the situation is casting a pall of gloom on the market.

The technical indicators are turning bearish. The 20 day EMA has started to move down. The 50 day EMA is about to drop below the 200 day EMA - and confirm the bear market. The slow stochastic and RSI have both dipped below the 50% mark. The MFI is poised on the 50% mark. The MACD is still above the signal line but has started sliding deeper into negative territory.
The strategy to follow now is to 'sell on rises' as the bears resume complete control.

DAX Index Chart

Just when it looked like that the DAX index chart had returned to a bull market, the bears struck back. I had mentioned about the possibility in last week's analysis:
'.. a technically important 'reversal day' pattern (higher high, lower close) on significantly higher volumes on Friday ... may encourage the bears to launch an attack next week.'
The index cleared the May '10 top but stopped short of the Apr '10 top and fell sharply below the 20 day EMA. The index found support from the 50 day EMA and it is possible that the bulls may use that to start another rally.
The technical indicators are not supporting such a possibility. The slow stochastic has dropped from the overbought zone. The RSI is above the 50% level but falling. The MFI is below the 50% level. The MACD is positive and above the signal line, but is reversing direction.
CAC 40 Index Chart

The bull rally in the CAC 40 index chart pattern was good while it lasted. The index actually managed a close above the 200 day EMA, but failed to go past the May '10 top. All good things usually come to an end. The index has fallen sharply below all three EMAs and reverted back to a bear market.
The technical indicators have started to weaken. The slow stochastic has dropped from the overbought zone. The RSI and MFI failed to climb up to their overbought zones and have changed directions. All three are still above their 50% levels. The MACD is above the signal line and marginally positive.
Bottomline? The chart patterns of the European indices are back in bear country. What appeared to be a 'bear squeeze' turned out to be a 'bull trap'. Selling on rises and shorting on a drop below the previous lows should be the strategy. Please remember to set adequate stop-losses.

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