Monday, February 14, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Feb 11, ‘11

S&P 500 Index Chart


The bulls are charging, and all efforts by the bears to stall this rally are being swept away by a tidal wave of ‘buying the dips’. The S&P 500 chart continues to defy gravity as it moves further away from its rising 50 day EMA. The distance between the 50 day EMA and the 200 day EMA is increasing by the day. Money making has become too easy. These are bearish signs. As long as investors maintain trailing stop-losses, there is nothing to fear. Let the good times roll.

The technical indicators are bullish. The MACD is above its signal line, and rising in positive territory. The slow stochastic remains entrenched in the overbought zone. The RSI is just below its overbought zone, but has failed to move up with the index – perhaps the only sour note in the bull party.

Companies are hoarding their cash piles. Some are raising more cash – but not spending much on hiring or new expansion. Consumer sentiment has improved a little. But existing home prices are falling. The economy is moving forward, but in fits and starts.

FTSE 100 Index Chart


The FTSE 100 chart is back in bull country. The index tested the Jan ‘11 top of 6090 two days in a row, fell back a bit and closed 1% higher on a weekly basis. Volumes were lower than the previous week’s, which is a concern.

Note that all three technical indicators touched lower tops while the index tested its previous high. The combined negative divergences could prod the bears into launching another attack. There is a possibility of a bearish double-top pattern if the 6090 level is not cleared convincingly. If the pattern does play out – and I’m not saying it will – a fall to the 200 day EMA is likely. Maintain trailing stop-losses.

The technical indicators are bullish, but there are signs of weakness. The MACD is rising in positive territory, and is above the signal line. The slow stochastic is in the overbought zone, but the %K line has dropped below the %D. The RSI has dropped to the 60% level after moving higher. The FTSE 100 is trading above the 50 day EMA, and both the moving averages are rising. There are no immediate threats to the bull market.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices are firmly in the control of bulls. Buy only if you find compelling value. Booking partial profits is never a bad idea. Stay invested.

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