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Monday, March 28, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Mar 25, ‘11

S&P 500 Index Chart

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In last week’s analysis of the S&P 500 index chart pattern, the technical indicators were looking bearish, but the bull market was intact as the index was trading above its rising 200 day EMA. Bulls needed to cross the hurdle of the 50 day EMA with good volumes to regain control.

After three days of hesitation near the medium-term moving average, the S&P 500 finally climbed back into bull territory with a 2.7% weekly gain. But volumes were lower than the previous week’s. Conquering the Mar ‘11 top of 1332 should now be on the agenda of the bulls. The technical indicators are pointing to such a possibility.

The MACD has crossed above the signal line in positive territory. The slow stochastic has risen rapidly above its 50% level. The RSI has also moved above its 50% level. After a sharp ‘V’ shaped rally on comparatively lower volumes, a pullback towards the 50 day EMA can’t be ruled out. Use it to add.

The economic news was mixed. Q4 GDP growth was revised upwards. Results from tech companies were good. But Univ. of Michigan Consumer Sentiment index was below consensus estimates and down 10 points from Feb ‘11. Rising gas and food prices remain a concern. Bull markets are supposed to climb on a ‘wall of worries’, and that is exactly what the S&P 500 appears to be doing. Use trailing stop-losses and stay invested.

FTSE 100 Index Chart

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Bearish hopes were dashed as the FTSE 100 index chart moved above the 200 day EMA to the 5800 level, and consolidated sideways for three days. A spurt on the last two days of the week, albeit on lower volumes, saw the index close above the 50 day EMA with a 3.2% weekly gain.

Can the rally be sustained? It may require quite a bit of effort from the bulls. The MACD has crossed above its signal line, but remains deep in negative territory. The RSI is still below its 50% level. The slow stochastic is looking bullish with a smart rise above its 50% level. The bearish pattern of lower tops and lower bottoms will not be negated till the FTSE 100 index crosses the Mar ‘11 top of 6052.

The bad news of the Japanese disaster and the Middle-East crisis seem to have been discounted, and technically the FTSE 100 is in a bull market.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices appear to have recovered from decent corrections and are back in bull markets. Investors should remain invested, but maintain trailing stop-losses to protect profits.

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