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Monday, May 30, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 27, ‘11

S&P 500 Index Chart


The S&P 500 index chart spent another week in the downward trend that started from the May 2 ‘11 top of 1371. On Mon. May 23 ‘11, the index dropped sharply below the 50 day EMA and the lower edge of the Bollinger Band. After spending the next three days below the 50 day EMA, the index finally managed to close above the 50 day EMA on Fri. May 27 ‘11 - almost flat on a weekly basis.

The good news is that the index made a higher bottom in May ‘11, keeping the longer term up trend from the Mar ‘09 low intact. The bad news is that Friday’s volumes were the lowest of the week, which is contrary to bullish hopes.

The technical indicators are bearish. The MACD is negative, and below the signal line. The slow stochastic bounced up from its oversold zone, but remains below the 50% level. The RSI is treading water below the 50% level. A drop below the Apr ‘11 low of 1295 will signal a deeper correction. A convincing break above the down trend line connecting the intra-day tops of May 2, 10 and 19 will be a ‘buy’ signal.

The economy continues to struggle. New orders for manufactured durable goods declined by 3.6% in Apr ‘11. Unemployment claims rose by 10000 to 424000. GDP growth remained flat. Import and exports are strong, which is a positive sign. The Univ. of Michigan Consumer Sentiment index was unexpectedly higher in May ‘11 (at 74.3 vs. 69.8 in Apr ‘11), but almost 14% below the average of 86 (calculated since 1978).

FTSE 100 Index Chart


The down trend in the FTSE 100 chart tested support from its 200 day EMA, only to bounce up and close the week bang on the 50 day EMA – losing about 10 points on a weekly basis.

The technical indicators are bearish, but showing some signs of revival. The MACD is negative and below its signal line. The slow stochastic has bounced up from its oversold zone, but is below the 50% level. The RSI has risen to its 50% level. A convincing move above the 5950 level may provide an impetus for the bulls.

The UK economy is in deep trouble. The British Chamber of Commerce (BCC) expects inflation to rise to 4.5%, forcing the Bank of England to raise interest rates. The BCC lowered their growth rates for 2011 and 2012 as per this article, but ruled out a return to recession.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices are in clear down trends. Investors should be circumspect about buying the dip because there is a possibility of deeper corrections. The longer-term trends are still up, as both indices are trading above their 200 day EMAs.

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