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Tuesday, January 11, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jan 07, ‘10

S&P 500 Index Chart

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In last week’s analysis of the US stock market (Dow), I had mentioned the possibility of some more consolidation. The S&P 500 index chart pattern touched a new high of 1278 on Jan 6 ‘11, but traded within a 20 point range through the week. Volumes have picked up considerably, which is a bullish sign. So is the higher close on a weekly basis.

Note that the index is well above its 50 day EMA and the gap between the 50 day EMA and 200 day EMA is widening. The MACD is positive, but is touching the signal line. It has made a lower top while the index made a higher one. The slow stochastic is well inside the overbought zone, but has also made a lower top. The RSI has slipped below the overbought zone.

The index is looking overbought. Signs of gradual recovery in the US economy are visible. But the employment situation continues to disappoint. A spot of correction will improve the sustainability of the bull market. The technical indicators are conducive to such a correction. Let us see if it happens.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern shows some interesting developments. Bears were brushed off as the index moved above the 6000 level on a volume spurt. A new high of 6090 was reached on Jan 6 ‘11, but by the end of the week, the FTSE closed below the 6000 mark at 5984.

The higher weekly close and pick up in volumes are bullish signs. But the volatility is a sign of uncertainty. The technical indicators are looking weaker. All three made lower tops while the index touched a higher top. The MACD is positive, but about to slip below the signal line. The slow stochastic re-entered the overbought zone, but dropped down immediately. The RSI has fallen lower than last week, though it remains above the 50% level.

The negative divergences in the technical indicators may lead to a correction. Watch the 5900 level, which is a strong support. A breach could take the FTSE down to the 50 day EMA.

Bottomline? Both the S&P 500 and FTSE 100 indices have retreated a bit after touching new highs. The bull markets remain strong. Hold, with trailing stop-losses.

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