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Monday, June 13, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jun 10, ‘11

S&P 500 Index Chart

In last week’s post, I had mentioned that a deeper correction in the S&P 500 chart pattern was likely as the technical indicators were looking quite bearish. The index slid down the slippery slope of the lower Bollinger Band almost to the 200 day EMA, before closing a bit higher at 1271.

From the May 2 ‘11 intra-day peak of 1371 to last Friday’s (Jun 10 ‘11) intra-day trough of 1268, the index has corrected 7.5% for its sixth straight lower weekly close. Will the S&P 500 bounce up from the support of the 200 day EMA, or go down further to test the Mar ‘11 low of 1249?

Even if there is a bounce from the long-term moving average, the technical indicators are suggesting that the correction isn’t over. The MACD is falling further away from its signal line in negative territory. The slow stochastic is deep inside its oversold zone. The RSI is just above its oversold zone. A convincing drop below 1249 could signal a change of trend.

The labour market is improving, but ever so slowly. QE2 has pretty much failed to boost the economy. The housing market is still in doldrums, despite falling mortgage rate. The weekly leading index growth indicator of the ECRI declined for the 7th straight week.

FTSE 100 Index Chart


The FTSE 100 index chart managed to stay above the 200 day EMA for the better part of the week, raising bullish hopes. Friday’s 100 point swing pushed the index below the long-term moving average for the first time in nearly three months.

Next downward target? A test of the Mar ‘11 low of 5592. Will the index get there? The bearish technical indicators are pointing that way. The MACD continues its slide into deeper negative territory below the signal line. The slow stochastic has entered its oversold zone. The RSI is below its 50% level and falling.

The slowdown in the economy and the government’s austerity measures have led to consumers cutting back on going out, car usage, food shopping and holidays, as per this article. The poor industrial production figures of April is a matter of concern.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices are struggling to stay above their 200 day EMAs. The percentage corrections from the May ‘11 peaks are in single digits, and the falling 50 day EMAs are well above the 200 day EMAs – so these are technically still bull market corrections. It may be prudent to wait for the corrections to play out before re-entering.

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