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Monday, May 16, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 13, ‘11

S&P 500 Index Chart

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It was a week of consolidation for the S&P 500 index chart. It traded within a range of 28 points – between 1332 and 1360 – before closing flat for the week, just below the 1340 level. But the index managed to stay above the rising 50 day EMA.

The technical indicators have weakened some more. The MACD is positive, but falling below the signal line. The slow stochastic has dived below the 50% level and is headed towards the oversold zone. The RSI has dropped to the 50% level. More consolidation is on the cards.

The economic news is slowly getting better. Retail sales grew 7.6% during the past 12 months – thanks mainly to rising food and fuel costs. Producer Price Index (PPI) for finished goods rose 0.8% in April, after rising 0.7% in March and 1.6% in Feb ‘11. Initial unemployment claims declined 44000 from the earlier week, but continued claims rose by 5000. Exports are increasing and commodity prices are falling. No wonder University of Michigan’s Consumer Sentiment Index for May was higher at 72.4 against April’s 69.8.

FTSE 100 Index Chart

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Last week, the weakening technical indicators of the FTSE 100 index chart had suggested a period of consolidation. The index oscillated about the 50 day EMA before closing 50 points lower on a weekly basis.

The technical indicators are turning bearish. The MACD is below the signal line, and on the verge of entering negative territory. The slow stochastic is headed downwards below its 50% level. The RSI is resting at its 50% level. Should the FTSE 100 index drop below the May 6 ‘11 low of 5872, a bearish pattern of lower tops and lower bottoms will be formed.

Manufacturing growth is flagging. GDP growth is almost nil. The austerity measures by the government seem to be stalling hopes of a quick economic recovery. 

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices are consolidating after the previous week’s correction. Stay invested but remain watchful about a deeper correction. Risk averse investors can take some profits home.

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