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

S&P 500 Index Chart

In the technical analysis of the S&P 500 index chart last week, it was mentioned that the technical indicators were looking bullish but showing signs of fatigue – due to negative divergences in the technical indicators and low volumes.

The index touched the highest levels of the month on Dec 27 ‘11 – both on intra-day and closing basis – by the narrowest of margins and accompanied by the lowest volumes in a holiday-shortened week. The weekly close was a bit lower; the monthly close was slightly higher; but the yearly close was absolutely flat.

All the technical indicators are showing bullishness. The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA is about to follow suit. The slow stochastic is at the edge of its overbought zone. The MACD has started to rise above the signal line in positive territory. The RSI has moved above the 50% level. The ROC is in the positive zone. The low volumes are a concern for the bulls. Till the Oct ‘11 top of 1293 is overcome, the bears will remain in the game.

The US economy continues to grow ever so slowly, with most indicators showing mild growth. Q3 GDP grew 1.8% vs. 1.3% in Q2. Manufacturing PMI rose to 52.7 in Nov from 50.8 in Oct. Conference Board’s LEI index is looking bullish, but ECRI’s WLI index is bearish. Housing is unlikely to lead the economic recovery, with prices still falling, foreclosures rising and new home sales at multi-decade lows. Initial unemployment claims rose to 381,000. As long as inflation and interest rates remain low, the S&P 500 may thrive.

FTSE 100 Index Chart

The FTSE 100 index chart managed to close above the 200 day EMA in 3 days of trading in a holiday-shortened final week of the year, but on progressively lower volumes. The 20 day and 50 day EMAs are trading well below the 200 day EMA – so the bulls still have plenty of work to do.

The technical indicators are beginning to turn bullish. The slow stochastic is above the 50% level. The MACD is starting to rise above its signal line in positive territory. The RSI has just managed to edge above the 50% level. The ROC has climbed into the positive zone. For the rally to sustain, more volume support is required.

The UK economy is slowing down and facing strong headwinds with falling real incomes coupled with austerity measures and the debt crisis in the Eurozone leading to lower UK exports. The prospect of a recession is looming large. The only bit of good news is that inflation may come down.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices continued their Santa Claus rallies on weak volumes. That puts question marks on the sustainability of the rallies in the new year. Both indices are indicating that the worst may be over for the respective economies. The trends have been up since touching the Oct ‘11 lows. Till the Oct ‘11 tops are crossed, one can remain cautiously optimistic.