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Monday, April 4, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Apr 01, ‘11

S&P 500 Index Chart

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Last week, the bullish technical indicators had suggested the possibility of a high above 1332. I had also mentioned about a possible pullback towards the 50 day EMA. Both events occurred as expected. Some times technical analysis works like a charm. The trick is not to get too enamoured with it.

On Tue. Mar 29 ‘11, the S&P 500 chart dipped to 1305 – its lowest point of the week. By Fri. Apr 1 ‘11, the index touched a high of 1338, before closing the week at 1332. The Feb ‘11 top of 1344 is almost within handshaking distance. Will the index reach a new high this week?

Volumes have been so-so. The index is close to the upper edge of the Bollinger Band, and near a previous high. It wouldn’t hurt to be a little cautious. The technical indicators are supporting the rally. The MACD is above its signal line, and both are rising in positive territory. The slow stochastic is in its overbought zone. The RSI is rising above its 50% level.

The employment situation is slowly improving, as reflected by the fall in unemployment benefit claims. Businesses have started to hire, and layoffs are reducing. Manufacturing and auto sales are showing strength. Stay invested, and use dips to add.

FTSE 100 Index Chart

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The bulls were on a roll, as the FTSE 100 chart gained more than 100 points on a weekly basis and closed above the 6000 level on good volumes. That was the good news. The not so good news is that the Mar ‘11 top of 6052 has not been overcome yet. The bulls still have some work left.

The technical indicators are conducive. The MACD has re-entered the positive zone and is rising above its signal line. The slow stochastic is in the overbought zone. The RSI is climbing smartly towards its overbought zone. Both the slow stochastic and the RSI have reached higher tops than the ones they touched in early Mar ‘11. Use any dips to add, but maintain suitable stop-losses.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices are poised to touch new highs. Previous tops often act as resistances, so a bit of caution is advised. Stay invested.

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