Monday, April 16, 2012

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Apr 13, ‘12

S&P 500 Index Chart


In last week’s analysis of the 6 months bar chart pattern of the S&P 500 index, the following observations were made: “The correction may not be over yet. A test of support from the 50 day EMA is a possibility. Only a drop below the Mar ‘12 low of 1340 can change the bullish outlook.” The chart has followed expectations so far. Despite a day’s close below it, the 50 day EMA has provided good support. The index hasn’t fallen below its Mar ‘12 low of 1340 either, and is trading above its rising 200 day EMA.

The technical indicators are looking bearish. The MACD is barely positive and well below its signal line. The RSI and the slow stochastic are both below their 50% levels. The ROC is sliding deeper into negative territory. A breach of the 50 day EMA seems likely. If the 1340 level is breached, a drop to the 200 day EMA can’t be ruled out.

The US economy continues its growth at a snail’s pace. Initial jobless claims rose to 380,000 – higher by 13,000 over the previous week’s upwardly adjusted figure of 367,000. AAII’s Sentiment survey showed a 10% drop in bullish sentiment to 28.1% (below the historical average of 39%) while bearish sentiment jumped by 13.8% to 41.6% (above the historical average of 30%). It wasn’t all bad news. House prices rose 3.8% from a year ago. The trade deficit at $46 Billion was lower than the consensus estimate of $52 Billion.

FTSE 100 Index Chart


In a holiday-shortened week, the 6 months bar chart pattern of the FTSE 100 index dropped below its 200 day EMA and the 5600 level. The subsequent bounce above the 5700 support level met with more selling and the index closed the week below its long-term moving average. The 20 day EMA has crossed below the 50 day EMA, and both EMAs are falling. The index is in danger of dropping back into a bear market.

The technical indicators are looking quite bearish, but not oversold. The slow stochastic emerged from its oversold zone and is struggling not to fall back in. The MACD is negative and below its signal line. The RSI is below its 50% level. The ROC has been in a down trend from the beginning of the year, as it continues a bearish pattern of lower tops and lower bottoms.

UK’s economy may avoid a double-dip recession by a whisker, thanks to growth in exports, but GDP growth is likely to be less than 0.5%. British businesses are wary of investing and that is not helping growth. CPI inflation is expected around 3.5% for Mar ‘12, and may come down during the year. High oil price remains a worry.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are reeling under sustained attack by the bears. The bulls are still holding their ground in the US market but are on the verge of being routed in the UK market. Time to be cautious and conserve cash.

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