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Monday, July 2, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 29, ‘12

S&P 500 Index Chart

S&P 500_Jun2912

The S&P 500 index daily closing chart pattern received good support from its 200 day EMA during the past week, before jumping up on strong volumes on Fri. Jun 29 ‘12. The outcome of the Eurozone summit was taken as a positive by market players. Let us see if the buying euphoria lasts more than a couple of days.

The index managed to close just above the important support-resistance level of 1360 for the week, but the breach of 1360 has not been a convincing one. At the time of writing this post, the index was trading just at the 1360 level. Technically, the index remains in a bull market, as it is trading above all three EMAs and the 200 day EMA is rising.

Technical indicators are looking bullish. MACD is above its signal line in positive territory. RSI is above its 50% level. Slow stochastic is just below its overbought zone. Is it time to buy?

Note that S&P 500 index has touched a higher top to form a bullish pattern of higher tops and higher bottoms from its Jun 4 ‘12 low of 1267. But RSI touched a flat top and slow stochastic touched a lower top. Negative divergences may stall the month-long rally. Buy only on a convincing move above 1360.

FTSE 100 Index Chart


The daily closing chart pattern of the FTSE 100 index dropped below all three EMAs during the past week, but bounced up smartly from the 5450 level. Another test of the falling 200 day EMA is likely. A breach of the 200 day EMA and a close above the Jun 20 ‘12 top of 5622 will form a bullish pattern of higher tops and higher bottoms.

Technical indicators are looking bullish. MACD is above its signal line in positive territory. Both RSI and slow stochastic have crossed above their 50% levels. Note that FTSE 100 index is technically in a down trend in a bear market. The current rally should be used to sell and not to buy.

Manufacturing activity is contracting in Germany, France, Italy and the UK. A break-up of the Eurozone may be off the table, but Europe is in a recession and the sovereign debt problems are far from being resolved. Alan Greenspan aptly compared Europe’s problems to a leaking boat in a recent TV interview: “It’s like a leaking boat in which we keep bailing it out and we’re very pleased with ourselves that we’d be able to keep bailing it out. The problem is we haven’t fixed the holes yet.”

Bottomline? The chart pattern of the S&P 500 index shows that bulls have managed to keep the bears at bay. The FTSE 100 index is still in bear country, but bulls are trying to engineer a counter-trend rally. Investors should wait for clear bullish trends to emerge. Cash conservation ought to be the prudent strategy.

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