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Monday, May 28, 2012

Stock Index Chart Patterns – S&P 500 and FTSE 100 – May 25, ‘12

S&P 500 Index Chart

S&P 500_May2512

In last week’s analysis of the S&P 500 index chart pattern, the oversold conditions in the technical indicators had signalled an upward bounce. But the bounce wasn’t expected to be a strong one because of prevailing bearish sentiment due to the Facebook IPO flop.

The index managed to close above its 200 day EMA on all five days in a desperate bid to remain in a bull market, but failed to make much upward progress. The S&P 500 appears to be consolidating within a symmetrical triangle pattern, which can eventually turn out to be a rectangular ‘flag’ pattern or a ‘rising wedge’ pattern. Either way, such consolidation patterns tend to be continuation patterns – so the likely break out from the pattern should be downwards.

The technical indicators have corrected oversold conditions. The MACD is negative and below its signal line, but has stopped falling. Both the RSI and the slow stochastic have emerged from their oversold zones. But the upward momentum is weak. A repetition of the strong rally from the Dec ‘11 low is unlikely.

No need to sell in a panic. The 50 day EMA is well above the 200 day EMA, and as mentioned in an earlier post, 1250 – 1300 is a strong support zone.

FTSE 100 Index Chart

FTSE_May2512

Selling exhaustion and oversold technical indicators of the FTSE 100 chart led to a week-long consolidation within a symmetrical triangle pattern. Once the pattern gets completed, the down move should resume. The ‘death cross’ of the 50 day EMA below the 200 day EMA has technically confirmed a return to a bear market.

The technical indicators are bearish, but correcting oversold conditions. The MACD is negative and below its signal line, but is not falling. The RSI has emerged from its oversold zone. The slow stochastic is still inside its oversold zone, but attempting to climb out.

All eyes should be on the outcome of the elections in Greece next month. If Greece decides to leave the Eurozone, Spain and Portugal may follow them. Monetary union without political union was an interesting experiment that may be reaching a failure point.

Bottomline? The S&P 500 chart shows that bulls are still fighting it out with the bears. Book part profits or hold with a suitable stop-loss. There is little doubt about which side is winning on the FTSE 100 battlefront. Every rise will be a selling opportunity.

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