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Monday, June 20, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jun 17, ‘11

S&P 500 Index Chart 
Last week, I had speculated whether the S&P 500 chart will be able to bounce up from its 200 day EMA or not. The index dropped below the 200 day EMA on Wednesday and Thursday (Jun 15, 16 '11), but managed to close above the long-term moving average on both days. By Friday, the S&P 500 chart bounced up a bit to close absolutely flat on a weekly basis.
The good news is that the index halted its six weeks long downward slide. The bad news is that the halt may be temporary. As the Grateful Dead sang many years ago, there is 'trouble ahead, trouble behind, and you know that notion just crossed my mind'.
The technical indicators are bearish. The MACD has stopped falling, but remains negative and below its falling signal line. The slow stochastic's feeble effort to emerge from its oversold zone failed miserably. The RSI's up move stalled at the 40% level and it is heading down towards its oversold zone. Looks like the correction isn't over yet.
Economic indicators weren't great either. The index of small business optimism declined for the third month in a row. The Conference Board's Leading Economic Index rose by less than 1% after declining in April '11. The Weekly Leading Index growth indicator of the Economic Cycle Research Institute declined for the eighth straight week. The University of Michigan Consumer Sentiment Index was down to 71.8 from 74.3 in May '11.
FTSE 100 Index Chart 
The bears are beginning to take control of the FTSE 100 index chart. The Mar '11 low of 5592 was not tested, but the index closed the entire week below the 200 day EMA. In the process, the lower Bollinger Band was pierced. An up move may follow.

The technical indicators are bearish. The MACD is below its signal line and sliding deeper into negative territory. The slow stochastic is well inside its oversold zone. The RSI is falling towards its oversold zone. The FTSE 100 chart has formed a bearish rounding-top pattern - pointing to a deeper correction.

The UK economy remains in the doldrums, as GDP growth has remained flat in the past six months. Unemployment has decreased but consumer sentiment remains low. Retail sales declined by 1.4%. Greece's bailout is casting a pall of gloom over European indices, and the FTSE 100 is suffering from its ill effects.
Bottomline? The chart patterns of S&P 500 and FTSE 100 indices show that this is likely to be a summer of discontent. Sit back and let the corrections play out. Lower entry points are likely to be available in the not-too-distant future.

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