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Monday, October 11, 2010

FTSE 100 Index Chart Pattern – Oct 08, '10

The FTSE 100 index chart pattern had last closed above the 5600 level on Sep 20 ‘10 before slipping into a sideways consolidation for the next 10 sessions, during which it failed to close above the 5600 mark. Last week, the index emerged from the sideways consolidation by going above the 5700 mark on an intra-day basis for the first time since Apr ‘10, and had four straight closes above the 5600 level.

The FTSE 100 received good support from the rising 20 day EMA and all three EMAs are rising with the index above them. Since the low of Jul ‘10, the index continues in a ‘higher tops and higher bottoms’ bullish pattern and is back in a bull market. Volumes have started to pick up a bit, but remains muted. That is a concern.

The 6 months bar chart pattern of the FTSE 100 index shows a bullish rounding-bottom pattern that is more clearly visible in the 50 day EMA:

image

For the bulls to regain control, the Apr ‘10 top of 5834 needs to be crossed on strong volumes. Friday’s (Oct 8 ‘10) close was less than 200 points lower, so it could be a question of time before the FTSE 100 touches a new high. But without volume support, the rally could fizzle out again.

The technical indicators are showing negative divergences. The slow stochastic has slipped below the overbought zone and has made a lower top. The MACD is flat in positive territory and touching the signal line. It has also made a lower top. The RSI dropped to the 50% level before bouncing up. The MFI is looking the weakest and is below the 50% level.

The bears are lurking around the corner and a correction down to the 50 day EMA could be on the cards. At the time of writing this post, the FTSE 100 is trading in a narrow range of 25 points near last Friday’s closing level.

Bottomline? The chart pattern of the FTSE 100 index is trying to emerge from a 6 months long consolidation period, and is still not quite out of the woods. Stay invested with trailing stop-losses. Fresh buying can be considered after a high volume break out above the Apr ‘10 top.

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