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Monday, July 16, 2012

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

S&P 500 Index Chart


In last week’s post, caution was advised as the 6 months daily bar chart pattern of S&P 500 index had formed a bearish ‘rising wedge’ from which the likely break out was expected to be downwards. Note that there was an intra-day breach below the ‘rising wedge’ accompanied by the highest volumes of the week on Thu. Jul 12 ‘12, but the index bounced right back inside the wedge the next day. Technically, the breach wasn’t a valid one and the index is still trading within the wedge at the time of writing this post.

The 20 day EMA has crossed above the 50 day EMA and all three EMAs are rising with the index trading above all three EMAs. That is the sign of a bull market. So the strategy should be to buy on dips. However, it may be better to err on the side of caution when a bearish pattern is clearly visible. Rising volumes on down days last week is also bearish.

Technical indicators are looking bullish. MACD is positive and entwined with its signal line. RSI is above its 50% level but moving down. Slow stochastic is also above its 50% level. One can hold current positions. Fresh entry is not advisable.

FTSE 100 Index Chart


The 6 months daily bar chart pattern of the FTSE 100 index spent the entire week above its 200 day EMA, but is trading within a bearish ‘rising wedge’ pattern. The 50 day EMA is below the 200 day EMA, so the current rally which started from the Jun ‘12 low is technically a bear market rally.

Technical indicators are looking bullish. MACD is positive and about to touch its signal line. RSI is above its 50% level. Slow stochastic has dropped from its overbought zone and sliding down.There may be still some steam left in the rally. However, the possibility of a break down below the wedge can not be ignored.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are trading within bearish ‘rising wedge’ patterns from which the likely break out will be downwards. Patterns don’t always repeat on technical charts, but it is prudent not to bet against a clearly visible bearish pattern. Caution should be the watchword.

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