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Monday, January 17, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jan 14, ‘10

S&P 500 Index Chart

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The S&P 500 index chart pattern charged up to another new high of 1293 on good volumes – though volumes were slightly lower than the previous week’s. The index continues to trade well above the 50 day EMA and the gap between the 50 day and 200 day EMA continues to widen.

I had expected a correction last week, but it didn’t happen. There are negative divergences in the MACD, which remained flat and just edged above the signal line; and the RSI, which has risen to the edge of its overbought zone. Both failed to make higher tops with the index.

There are mixed signals from the US economy. Companies continue to show good growth and profits, but employment figures remain dismal. The housing situation isn’t encouraging either. Consumer sentiment has taken a dip. But inflation and interest rates are low. Coupled with lots of liquidity and a market trading a little below its long-term average P/E ratio, the bull market seems unstoppable.

FTSE 100 Index Chart

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The FTSE 100 index chart pattern oscillated around the 6000 level, before managing a slightly higher weekly close above it. The previous week’s high of 6090 wasn’t tested as the week’s high fell short at 6055. The index is consolidating within a symmetrical triangle from which the likely break out is upwards.

The weakening technical indicators may put a spanner in the (bull) works. The MACD is positive but falling below the signal line. The slow stochastic is moving down though it is above the 50% level. The RSI has slipped below the 50% level. All three are hinting at a correction or further consolidation.

As long as the FTSE remains above its rising 50 day and 200 day EMAs, there are no threats to the bull market.

Bottomline? Both the S&P 500 and FTSE 100 indices are in strong bull markets. Remain invested, and use any dips to add.

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