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Monday, May 9, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 06, ‘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 overbought and the RSI had displayed negative divergence. So the correction wasn’t a big surprise.

The index touched a new intra-day high of 1371 on May 2 ‘11 that pierced the upper Bollinger Band, but closed lower – forming a bearish ‘reversal day’ pattern (higher high, lower close). Over the next three days, the index corrected down towards the 50 day EMA, but pulled back to the 1340 level by Fri. May 6 ‘11.

The bullish pattern of higher tops and higher bottoms that started from the low of 1249 (Mar 16 ‘11) is intact. But the technical indicators have weakened some what. The MACD is positive, but has slipped below the signal line. The slow stochastic has dropped from the overbought zone to the 60% level. The RSI failed to reach its overbought zone and has fallen to its 60% level.

The economic growth is listless. The American Trucking Association’s truck tonnage index rose 1.7% in Mar ‘11 – a 6.3% YoY growth as per this article. Initial unemployment claims increased from previous week’s 431000 to 474000, the largest weekly increase in 2 years. The private sector has started hiring, while there is a reduction in public sector jobs. The fall in oil price should come as a boon to consumers.

FTSE 100 Index Chart

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It was a strangely volatile week of trading for the FTSE 100 index. The intra-day high of 6104 on May 3 ‘11 tested the Feb ‘11 top of 6106. But it couldn’t quite reach the upper Bollinger Band. A sharp drop below the 50 day EMA on increasing volumes over the next 2 days sent a clear warning to the bulls.

The index fell to 5872 on Fri. May 6 ‘11, piercing the lower Bollinger Band but stopping short of the Apr ‘11 low of 5870. Short-covering led to a smart bounce above the 50 day EMA, and formed a bullish ‘reversal day’ pattern (lower low, higher close).

Is the worse over for the bulls? The technical indicators are not holding out great hopes. The MACD is positive, but has dropped below its signal line. The slow stochastic has descended rapidly from the overbought zone to the 40% level. The RSI also dropped below the 50% level, but has bounced up a bit. Some consolidation can be expected.

The UK economy continues to struggle. Manufacturing growth is faltering on lower orders from the construction sector and subdued consumer spending. However, export orders rose in Apr ‘11.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices suffered another bear attack last week. The S&P 500 emerged reasonable unscathed, but the FTSE 100 is still struggling. Both indices are trading above their rising 200 day EMAs and remain in bull markets. Stay invested, but maintain stop-losses.

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