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Monday, March 7, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Mar 04, ‘11

S&P 500 Index Chart

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The S&P 500 index consolidated within a 30 point range last week, before closing almost flat on a weekly basis. The index went down towards the lower edge of the Bollinger Band on Wed. Mar 2 ‘11 before recovering a bit. The band has narrowed, which could lead to an up move this week.

The technical indicators are giving mixed signals, which is often the case during consolidation periods. The MACD is still positive, but remains below its falling signal line. The RSI has dipped below the 50% level, after a failed effort to move above it. The slow stochastic has risen above the 50% level. The 50 day and 200 day EMAs are both rising with the index above them. The bull market is alive and well.

The jobs report was mixed. Unemployment rate has dropped below 9%, but there seems to be very little growth in private sector jobs. Retail figures aren’t too encouraging. Most worrying is the rise in oil prices due to the unrest in North Africa and the Middle East. As per a recent article, the most dangerous periods for equity markets are typically periods of strong economic activity combined with rapidly rising oil prices. Emerging markets are already facing the music. Will the S&P 500 follow suit?

FTSE 100 Index Chart

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As expected in last week’s analysis, the FTSE 100 continued its sideways consolidation as it oscillated about its 50 day EMA. The lower edge of the Bollinger Band was pierced by the intra-day low on Wed. Mar 2 ‘11. The index may try to move up this week.

The technical indicators are not favouring the bulls. The MACD is negative, and below its falling signal line. The RSI is below the 50% level. The slow stochastic has moved up from the edge of its oversold zone, but remains below the 50% level. The 200 day EMA is still rising, so the long-term trend is bullish. Remain invested; watch for a break out of the trading range between 5800 – 6100 before deciding on the next course of action.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices are trying to recover from a correction induced by the oil price shock. The bull rallies have lasted for two years. It may be prudent to be cautious and book some profits. Maintain stop-losses to preserve profits.

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