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Monday, April 25, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Apr 21, ‘11

S&P 500 Index Chart

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The MACD and slow stochastic were looking bearish last week, but the RSI was giving a contrary signal. That led me to conclude that the correction may continue, but won’t be too deep. On Mon. Apr 18 ‘11, the S&P 500 dropped below the rising 50 day EMA and the 1300 level to the lower edge of the Bollinger Band. A sharp bounce could not prevent a close below the 50 day EMA.

Just as the bears thought that the tide was turning in their favour, the bulls struck back strongly. The 50 day EMA was regained on Tuesday. A gap up opening on Wed. Apr 20 ‘11 was followed by a weekly close just below the 1340 level before the long Easter weekend. The index gained almost 1.5% week-on-week.

The technical indicators are beginning to look bullish. The MACD is rising in positive territory, and is about to cross above its signal line. The slow stochastic has climbed sharply towards its overbought zone. The RSI is above its 50% level, but hesitating a bit. The 1340 level provided strong resistance earlier this month, and more resistance can be expected before the index can finally cross it.

The US economy remains on a slow growth curve. Unemployment claims were lower by 13000 from the week before, but is still above the 400,000 mark. The Conference Board Leading Economic Index rose for the 24th straight month since Apr. 2009. Inflation concerns are affecting consumer sentiments.

FTSE 100 Index Chart

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The likelihood of the correction continuing in the FTSE 100 chart was mentioned last week. What wasn’t mentioned was the likely volatile behaviour due to the widening of the Bollinger bands. The index swung like a yo-yo, falling by more than 130 points on Mon. Apr 18 ‘11 and rising almost an equal amount on Wed. Apr 20 ‘11.

The FTSE 100 closed the first two days of a holiday shortened trading week below its 50 day EMA, but regained the 6000 level for a 22 points weekly gain. The technical indicators are giving mixed signals. The MACD is positive, and touching its signal line. The slow stochastic has risen above the 50% level. The RSI is resting on its 50% level. Some consolidation can be expected before an attempt is made to reach new highs.

Bottomline? The corrections in the chart patterns of the S&P 500 and FTSE 100 indices provided opportunities to the bulls to outsmart the bears. Both indices are trading above their rising 50 day and 200 day EMAs – indicating bull markets. The Feb ‘11 tops still need to be conquered. Stay invested.

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