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Tuesday, October 11, 2011

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Oct 07, ‘11

S&P 500 Index Chart

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The S&P 500 index chart dropped to a new intra-day low of 1075 on Oct 4 ‘11, but instead of falling lower the index bounced up sharply and caught the bears by surprise. The index has crossed above the 20 day EMA again and is likely to test the resistance from the falling 50 day EMA. The rising volumes should provide an added impetus to the bulls.

The technical indicators haven’t quite turned bullish yet. The slow stochastic and the RSI are below their 50% levels. The MACD and the ROC are both negative. However, all four indicators touched higher bottoms while the index dropped lower. The positive divergences could lead to a breach of the 50 day EMA.

The economic news remains mixed – neither favouring a double-dip recession, nor showing any strength. Sept ‘11 small truck sales were higher by 9.5% over Aug ‘11, and 20% higher on a YoY basis – a sign that small businessmen are seeing growth on the horizon. ISM’s non-manufacturing business activity index rose by 2.7% over Aug ‘11 and about 5% on a YoY basis. But announced corporate layoffs rose sharply above the 100,000 mark. ECRI’s Weekly Leading Index (WLI) of growth declined further to – 8.1 from the previous week’s – 7.2.

FTSE 100 Index Chart

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The FTSE 100 index chart refused to play second fiddle to the S&P 500 index chart. It tested, but did not fall below, the Aug ‘11 low of 4791. The upward bounce has carried the index above its falling 50 day EMA.

The technical indicators are showing some signs of bullishness. The MACD is negative, but rising above its signal line. The slow stochastic has moved above the 50% level. The RSI and the ROC are at their ‘0’ levels, and rising. But volumes have not been great, and the FTSE 100 may fall short of reaching its 200 day EMA.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices have bounced up sharply from last week’s lows. But remember that both indices are technically in bear markets. The rallies will probably be used as selling opportunities by the bears. Better to stay on the sidelines till the dust settles.

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