Sunday, August 8, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 06, '10

FTSE 100 Index Chart


The FTSE 100 index chart pattern is making steady progress into bull territory. The bounce up from the 200 day EMA wasn’t a surprise – the bunching together of the three EMAs had hinted at such a possibility last week.

The lack of volume support for the up move saw the index dip down before it could touch the 5400 level. Volumes were low on the first two days of the week when the index closed flat at 5397, but picked up as the index slid down on the last three days. Signs of distribution.

The technical indicators are giving off mixed signals. On one hand, all three EMAs are moving up. The 20 day EMA has crossed above the 200 day EMA, and the 50 day EMA is trying to do the same.

On the other, the slow stochastic, RSI and MFI made lower tops as the index made a higher one. The negative divergences are a cause of worry for the bulls. The MFI has slipped below the 50% level, which is bearish. The MACD is positive and above the signal line. The slow stochastic is just below the overbought zone. The RSI is above the 50% level. All three are bullish.

The May ‘10 closing high of 5434 – about a 100 points away – will be the next hurdle that the bulls need to negotiate. On the down side, support can be expected from the intertwined 50 day and 200 day EMAs.

DAX Index Chart


The DAX index chart pattern had an expected break out from the ascending triangle pattern by first climbing above the 6200 level, and then the Jun ‘10 top of 6331 and the Apr ‘10 top of 6342. It made a new 52 week high of 6387 on Friday.

There should be an appreciable increase in volumes for such a break out to be technically valid. Unfortunately, volumes remained tepid. The highest volume of the week came on Friday, when the index dropped 74 points to close at 6260 - making a bearish reversal day (higher high, lower close) pattern.

The DAX index is gradually moving up into bullish territory. The sequence of higher tops and bottoms, and rising EMAs show that bear resistance is wearing off.

All the three oscillators – RSI, MFI and slow stochastic – are above their 50% levels. The MACD is above the signal line and rising in positive territory. Friday’s reversal day could be a warning sign that the bears may start a counter attack.

CAC 40 Index Chart


The CAC 40 index chart pattern joined the bull party by spending the entire week above the 200 day EMA. Friday’s selling on higher volumes could not prevent the index from closing 70 points higher on a weekly basis.

The 20 day EMA has crossed above the 50 day EMA. The MACD is above the signal line and rising in positive territory. The RSI is about to enter the overbought zone – which it has not visited in the past 5 months. The MFI is above the 50% level but made a lower top as the index made a higher one. The slow stochastic is in the overbought zone.

The RSI doesn’t like to stay in the overbought zone for long, so a correction or sideways consolidation can be expected next week.

Bottomline? The chart pattern of the European indices are doing their best to shake off the bears. Before you throw caution to the winds and start buying, please remember that all three indices are well below their 2007 tops. So, buy selectively, and in fundamentally strong, front-line companies.

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