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Monday, November 14, 2011

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

S&P 500 Index Chart

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The S&P 500 index chart had another weekly close above the 200 day EMA, and is consolidating within a small symmetrical triangle pattern. The likely break out from such a triangle is upwards, since consolidation patterns tend to be continuation patterns. But triangles are unreliable patterns, and the break out can be in either direction – so trade with caution.

The technical indicators are giving mixed signals, which isn’t unusual during periods of consolidation. The slow stochastic is just above the 50% level, but touched a lower bottom. The MACD is positive, but below its signal line. The RSI is at the 50% level. The ROC has climbed back into positive territory, after touching a lower bottom. The 20 day EMA is entangled with the 200 day EMA. The 50 day EMA is rising, but is still below the 200 day EMA. The index is technically in a bull market, but things may change in a hurry.

The economy is showing a few encouraging signs. Weekly jobless claims fell to 390,000 – below the psychological 400,000mark. University of Michigan’s Consumer Sentiment Index came in at 64.2 – its third straight monthly improvement, but still below the average level of 69.3 during the past five recessions. The dark clouds haven’t blown away altogether. Container traffic between Asia and USA declined 3.8% in Q3, the first decline since Q4 ‘09. Rising oil price is another concern.

FTSE 100 Index Chart

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Last week’s trading ended with a slightly higher weekly close for the FTSE 100 index chart, but a failure to cross above the 200 day EMA. The index is consolidating within a triangle pattern, but it looks like a bearish descending triangle from which the likely break will be downwards. The 20 day and 50 day EMAs are still rising, but are below the 200 day EMA. The struggle by the FTSE 100 to re-enter a bull market continues.

The technical indicators are looking bearish. Both the slow stochastic and the RSI are below their 50% levels. The MACD is below its signal line, and falling in positive territory. The ROC is trying to climb back into the positive zone. The index is technically in a bear market.

Unemployment in the UK is at a 17 year high, and is expected to rise further. A double-dip recession may be avoided, but the GDP growth in 2012 is likely to be a paltry 1.2%, as per this article. British companies like Vodafone, Diageo, Dixons, Unilever are reeling from the crisis in the Eurozone. Change of leadership in Greece and Italy – both new Prime Ministers are Ivy League trained economists – may provide temporary succour to stock markets, but long-term concerns about their debt problems remain.

Bottomline? The chart patterns of the S&P 500 and FTSE 100 indices continued their respective struggles – the former to remain in a bull market; the latter to get out of a bear market. This isn’t a time to be aggressive or proactive. Passive optimism and capital preservation should be the strategy till the end of the year.

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