Monday, April 30, 2012

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Apr 27, ‘12

S&P 500 Index Chart


In last week’s technical analysis of the S&P 500 index chart pattern, the following observations were made: “… S&P 500 index shows consolidation within a symmetrical triangle for the past two weeks … Triangles tend to be continuation patterns, which means that the likely break out will be below the triangle. But triangles are quite unreliable, so it may be better to wait for the break out.”

The technical indicators were bearish, so the likelihood of a downward break had seemed higher. However, as often happens with triangles, the actual break out was upwards – probably a bear trap planned by bulls. Short covering aided the break out.

Upward break outs require strong volumes to sustain. Have a look at the last three volume bars as the index broke out above the 20 day EMA and the triangle. Volumes were not significantly higher. In fact, on Fri. Apr 27 ‘12, volumes dropped as the index rose above the 1400 level. That keeps open the possibility of a ‘false’ break out.

The technical indicators have turned bullish. The slow stochastic and the RSI have both climbed above their 50% levels. The MACD has crossed above its signal line into positive territory. The ROC has also entered positive territory, but is turning down. The bears can be expected to fight back. But remember that the S&P 500 is in a bull market. So, corrections should be used as adding opportunities.

FTSE 100 Index Chart


The 6 months bar chart pattern of the FTSE 100 index shows another brave effort by the bulls to loosen the bear stranglehold. Once again, the 50 day EMA played spoilsport by thwarting the bull rally. Technically, the index is in a bull market as it is trading above the 200 day EMA. But the bulls are standing on thin ice.

The technical indicators are mildly bullish. Both the slow stochastic and the RSI have just about crossed above their 50% levels. The MACD has moved above its signal line, but remains negative. The ROC made a sharp recovery to climb into positive territory, but is turning down. The bears may be in temporary retreat, but can fight back at any time.

Bottomline? The chart pattern of the S&P 500 index shows that the bulls are regaining the upper hand. Buy the dips. Not so for the FTSE 100 chart, where the bears are pressing the sell button every time there is an attempt to mount a rally. Sell the rallies or sit out the correction.

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