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Sunday, August 22, 2010

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 20, '10

FTSE 100 Index Chart

FTSE_Aug2010

The FTSE 100 index chart pattern made a feeble effort at a pull back, using the support from the entangled 50 day and 200 day EMAs. The effort was short-lived. The weak technical indicators and low volumes led to the inevitable drop back into a bear market – as foreseen last week.

The index not only lost 180 points on a weekly basis, but closed the week below the 200 day EMA and the 5200 level. In the process, the FTSE 100 chart has made a bearish ‘lower top – lower bottom’ pattern. Also note a bearish ‘rounding top’ pattern formed by connecting the Jul ‘10 and Aug ‘10 tops.

The rally from the Jul 1, ‘10 low of 4790 appears to have ended, signalling the onset of the next leg of the bear market, which will be confirmed when the index drops below 4790. The technical indicators are supporting that prognosis.

The 20 day EMA has started to drop and is likely to fall below the merged 50 day and 200 day EMAs soon. Higher volumes on down days suggest distribution. The slow stochastic has almost dropped to the oversold zone. The MACD is below the signal line and barely in positive territory. The RSI and MFI are both below their 50% levels.

DAX Index Chart

DAX_Aug2010

The weak pull back effort by the DAX index chart pattern was cut short by a ‘reversal day’ pattern on Thurs. Aug 19, ‘10. The index touched a high of 6229 but closed 150 points lower by the end of the day on good volumes.

The fall continued on Fri. Aug 20, ‘10 and after briefly slipping below the 6000 level intra-day, the index closed at 6005 – more than 100 points lower on a weekly basis.

Technically, the DAX will remain in a bull market as long as it stays above the 200 day EMA. However, a bearish ‘lower top – lower bottom’ pattern is compounded by another bearish head-and-shoulders pattern that can lead to a dip below the long-term moving average.

Previous forays below the 200 day EMA have been brief, followed by sharp recoveries. So, there is no need to rule out a similar bounce back by the bulls yet.

The technical indicators don’t hold out immediate bullish promise. The slow stochastic is at the edge of the oversold zone. The RSI and MFI have both slipped below their 50% levels. The MACD is below the signal line and barely positive.

CAC 40 Index Chart

CAC_Aug2010

There is no doubt whatsoever about which animal is dominating the CAC 40 index chart pattern. The bears are poised to hammer in the last nail in the bull coffin – just waiting for the 20 day EMA to drop below the 50 day EMA.

Volumes increased on Thursday and Friday as the index fell. A clear sign of distribution. The technical indicators are looking weak but not oversold – which means the correction is likely to continue next week.

The slow stochastic is about to enter the oversold zone. The RSI and MFI are below their 50% levels. The MACD is below the signal line and marginally in positive territory.

Bottomline? The bears are tightening their grips on the European indices. The FTSE 100 and CAC 40 chart patterns are back in bear markets, awaiting a final technical confirmation that will open up shorting opportunities. The DAX chart pattern is still above a rising 200 day EMA, and a bounce up from the 5800-6000 zone may provide buying opportunities. 

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