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Monday, June 27, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jun 24, ‘11

S&P 500 Index Chart

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The S&P 500 index chart spent another week of gyrations without making much headway. It rose a bit higher only to face resistance from the 1300 level, and closed marginally lower. Bulls may feel relieved that the index closed the entire week above the 200 day EMA.

Bears will point out that a higher high and a lower close means it was a bearish ‘reversal week’. The index has spent 18 straight trading sessions below the falling 50 day EMA. The down trend that began from the May 2 ‘11 top of 1371 remains firmly in place. The bearish pattern of lower tops and lower bottoms continues.

The technical indicators are weakening after showing some signs of life. The MACD is negative and about to cross below the signal line. The slow stochastic rose sharply to the 60% level, but the %K line has dropped below the %D line and the 50% level. The RSI is moving sideways, and is also below the 50% level. The bears are getting ready to take control.

There isn’t much good news on the economic front. The GDP growth has been downgraded to 2.7% from the earlier estimate of 2.9%. Unemployment claims increased by 9000 to 429000 – the 11th straight week above the 400000 mark. Sales of new and existing homes dipped in May ‘11. Oil prices have fallen – but that isn’t necessarily good news for the stock market.

FTSE 100 Index Chart

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The FTSE 100 made a futile effort at an up move that was quickly stalled by the bears. The long-term moving average has now turned down and the ‘death cross’ of the rapidly sliding 50 day EMA below the 200 day EMA appears imminent. The index spent the second week in a row below the long-term moving average.

The technical indicators are bearish and not holding out much cheer for the bulls. The MACD is below its signal line, and both are falling in negative territory. The slow stochastic and RSI are both below their 50% levels. A test of the Mar ‘11 low of 5592 is on the cards.

Greece’s bailout is like using chewing gum to plug holes in a leaking boat – postponing the inevitable. The severe repercussions to European and UK banking systems have not been fully revealed yet.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices may face deeper corrections. If you are still invested, keep strict stop-losses at 1260 for the S&P 500 and 5650 for the FTSE 100. Things may get worse before they can get better.

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