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Monday, February 20, 2012

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Feb 17, ‘12

S&P 500 Index Chart


The following observation was made in last week’s analysis of the S&P 500 index chart pattern: “A correction down to the rising 20 day EMA may be just the impetus that the bulls need to take the index past the May ‘11 top of 1371.” There was no correction – just a sideways consolidation. But the index rose to an intra-day top of 1363, within hand-shaking distance of the May ‘11 top of 1371. The bears have been all but vanquished.

Low volumes as the index rose to a new high, as well as negative divergences in all four technical indicators – which failed to reach new highs with the index - may be the trigger for a correction this week. That doesn’t mean one should short a bull market. All three EMAs are rising and the index is trading above them.

The technical indicators are looking bullish. Only the slow stochastic is looking overbought, but it can remain so for long periods. The MACD has slipped a bit, but is still positive and touching its signal line. The RSI is rising towards its overbought zone. The ROC is positive, but moving sideways.

The US economy continues to improve slowly. Initial weekly unemployment claims dropped to 348,000, its lowest level in almost 4 years. Retail sales increased by 0.4% in Jan. YoY changes in housing starts was positive for the 5th month in a row. Industrial production was marginally higher. All talk about recession is now off the table.

FTSE 100 Index Chart


The FTSE 100 index traded sideways during the past week. Despite an intra-day drop to its rising 20 day EMA on Thu. Feb 16 ‘12, the index managed to close about 50 points higher on a weekly basis. All three EMAs are rising and the index is trading above them – indicating a bull market.

The technical indicators are bullish. The slow stochastic is inside its overbought zone. The MACD is positive, and touching its signal line. The RSI has climbed sharply towards its overbought zone. The ROC is positive, but moving down.

There was some good news on the economic front. CPI dropped to 3.6% in Jan. from 4.2% in Dec. Retail spending rose a surprising 0.9% in Jan. - raising hopes of avoiding a double-dip recession. However, Eurozone GDP declined by 0.3% in Q4 ‘11. Even Germany’s growth shrank and increased prospects of a recession that will dent UK’s exports to the EU.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are in bull markets. Stay invested with trailing stop-losses, and use dips to add.

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