Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 20, ‘11

S&P 500 Index Chart

The S&P 500 index chart consolidated for another week, as was expected from the weakening technical indicators. After touching a new intra-day high of 1371 on May 2 ‘11, which pierced the top edge of the Bollinger Band, the index has been trading within a downward sloping channel for three weeks.

The sharp drop below the 50 day EMA on Tue. May 17 ‘11 touched the lower edge of the Bollinger Band, but recovered quickly – just as it had done after dropping to an intra-day low of 1295 on Apr 18 ‘11. However, the rally fizzled out by Thu. May 19 ‘11 as the index approached the top of the downward-sloping channel. The S&P 500 index managed to close the week almost flat and above the 50 day EMA.

The technical indicators are not holding out much bullish hopes. The MACD is still positive, but falling below its signal line. The slow stochastic bounced up from its oversold zone, but is below the 50% level. The RSI is also below the 50% level. A test of the Apr ‘11 low of 1295 is likely.

Initial jobless claims were lower by 29000, but still remains above the 400000 mark. Housing permits and starts declined. So did existing home sales. People neither have the confidence, nor the buying power, to avail of the fire sale in the housing market. Sliding sales at Walmart stores is another sign of waning consumer confidence.

FTSE 100 Index Chart

The FTSE 100 index chart has been trading within a downward sloping channel for three weeks, after reaching an intra-day high of 6104 on May 3 ‘11. A sharp intra-day spurt to 6018, riding on the highest volumes of the week on Fri. May 20 ‘11, failed to break the down trend. The index closed 20 odd points higher on a weekly basis – almost exactly at the level of its 50 day EMA.

The technical indicators are suggesting that the corrective move isn’t over yet. The MACD is negative and below its signal line. The slow stochastic bounced up from its oversold zone but remains below the 50% level. The RSI is also below its 50% level.

The UK Business Secretary, Vince Cable, candidly admitted in a recent interview that the UK economy is in worse shape than what the politicians are making it out to be.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices have been trading within downward-sloping channels for the past three weeks. Both indices are above their rising 200 day EMAs. That means the bull markets are intact. But there are dark clouds on the horizon. Time to use the ‘umbrella’ of partial profit booking.