Monday, October 3, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Sep 30, ‘11

S&P 500 Index Chart

In last week's analysis, it was mentioned that the high volume break down below the bearish flag pattern on the S&P 500 index chart may be followed by a pullback, which would be a good selling opportunity. The pullback was quite sharp, and re-entered the consolidation zone and even climbed past the falling 20 day EMA.

Just when it seemed that the index was ready to test the resistance from the falling 50 day EMA, the bears decided to strike. The index fell on good volumes, and once again the Aug '11 low of 1100 is under threat. A break below 1100 can easily lead to a 10-15% correction.

The technical indicators are beginning to weaken. The slow stochastic is falling below its 50% level. The MACD is negative, and below its signal line. The RSI is trying to climb above its 50% level. The Greece default overhang is weighing heavy on market sentiments.

The economic news came in better than expectations. Initial jobless claims fell to 391,000 -  falling below 400,000 for only the second time in 25 weeks. Q2 GDP rate rose at an annualised 1.3%, instead of the expected 1%. Consumer spending rose at an annualised 0.7% rate, instead of 0.4% reported earlier. The Univ. of Michigan Consumer Sentiment Index rose to 59.4 from 55.7 in Aug '11. The fly in the ointment was ECRI's Weekly Leading Index (WLI) growth indicator, which declined to - 7.2 from the previous week's - 6.7. The ECRI has predicted another recession in the USA.

FTSE 100 Index Chart

The FTSE 100 index chart pattern seems to be playing follow-the-leader with the S&P 500 chart. The previous week's break down below the bearish flag patten was followed by a sharp pullback that almost reached the falling 50 day EMA. High volume selling on Friday (Sep 30 '11) brought the index crashing down. At the time of writing this post, the FTSE 100 is trading near the 5050 level - recovering from a drop below the 5000 mark.

The technical indicators are looking weak. The slow stochastic has dipped below the 50% level. The MACD is negative and touching the signal line. The RSI is at the 50% level, making another attempt to climb above it. A break below the Aug '11 low of 4800 will trigger the next leg of the fall.

Inflation is rising. So are job losses. The UK PMI crossed above the 50 mark unexpectedly indicating manufacturing expansion, but the market ignored the 'good' news. That is how bear markets tend to behave.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are getting ready to explore new depths of their bear markets. This is not the time to be heroic. Sit on your cash, and be prepared to enter at lower levels.

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