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Sunday, July 25, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Jul 23, '10

FTSE 100 Index Chart

FTSE_Jul2310

The chart pattern of the FTSE 100 index took support from the rising 20 day EMA, rose past the 200 day EMA, and closed above the 5300 level after more than 2 months. Volumes picked up some what but isn’t strong enough yet to sustain the rally for long.

The index has made a bullish pattern of higher tops and bottoms and the technical indicators are supporting the bulls. The slow stochastic and RSI have entered their overbought zones. The MACD is above the signal line and in positive territory. The MFI is above the 50% level, but showing the effects of Friday’s lower volumes.

Note that the MACD and MFI made higher bottoms in Jul ‘10 even as the FTSE 100 made a lower one. The positive divergences (even the RSI and slow stochastic had flat bottoms and not lower ones) could have triggered the bull rally.

The May ‘10 top of 5435 – just about 120 points away – will be the next target for the bulls. But the real barrier will be the Apr ‘10 top of 5825. The FTSE 100 is displaying a bullish inverse head-and-shoulders pattern. If the pattern plays out, then a test of the Apr ‘10 top may be on the cards.

DAX Index Chart

DAX_Jul2310

The DAX index chart pattern never really entered a bear market, with the rising 200 day EMA acting as a pillar of support for the bulls. Though one German bank was among the seven (out of 91) Eurozone banks that failed the recent stress test, the bulls have taken the setback in stride.

Low trading volumes and a marginally negative MACD indicator are the only concerns. The other three indicators – slow stochastic, RSI and MFI – are all above their 50% levels and rising. The 20 day EMA has inched above the 50 day EMA.

The DAX index has been trading within a symmetrical triangle for the past month - with the tops of Jun ‘10 and Jul ‘10 and the two bottoms in Jul ‘10 forming the boundaries of the triangle.

An upward break out from the triangle may be imminent. Watch out for an increase in trading volumes on the likely break out – otherwise, it may turn out to be a ‘false’ break out.

CAC 40 Index Chart

CAC_Jul2310

All the French banks passed the stress test, and the bulls celebrated by pushing the CAC 40 index above the 20 day and 50 day EMAs. Trading volumes have been decent.

A symmetrical triangle has formed from which an upward break out is likely. A break out on an increase in volumes could see the CAC 40 move above the 200 day EMA.

The technical indicators are supporting the bulls. The RSI, MFI and slow stochastic are above their 50% levels. The MACD is barely negative and touching the signal line.

Bottomline? The chart patterns of the European indices are showing signs of recovery after a three months long spell of bearishness. Selective buying in ‘defensive’ stocks can be started. This isn’t a good time to look for would-be ‘multibaggers’.

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