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Monday, August 6, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 03, ‘12

S&P 500 Index Chart


The 6 months daily closing chart pattern of the S&P 500 index is zig-zagging its way higher from its Jun ‘12 low, despite determined attempts by the bears to stall the rally. All three EMAs are rising and the index is trading above the EMAs. The bulls are back in control, or are they?

The index is trading well above its 20 day EMA, which in turn is trading high above its 200 day EMA. Expect some more zig-zag moves, as the bears may attack at any time. The index is approaching previous tops of Apr and May ‘12 – which can attract profit booking. Volumes have remained high on down days, which is a concern.

Technical indicators are bullish. RSI is above its 50% level, and rising. MACD is moving up in positive territory above its signal line. Slow stochastic is alternately entering its overbought zone and falling below its 50% level. Note that RSI and slow stochastic are showing negative divergences by touching flat or lower tops as the index has climbed higher.

S&P 500 has provided great trading opportunities in the last 2 months, but long-term investors may have spent a few sleepless nights. Hold on, and enjoy the ride while it lasts.

FTSE 100 Index Chart


The 6 months daily closing chart of the FTSE 100 index is trying to emulate the S&P 500 index by zig-zagging its way into bull territory despite a perceptible slow down in the UK economy. Just goes to show that the stock market doesn’t always follow logic.

The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA may do so soon. The ‘golden cross’ will confirm a return to a bull market. All three technical indicators are bullish, but showing negative divergences by failing to reach higher tops with the index. Expect a correction in the near term, as the index is approaching its Apr and May ‘12 tops.

Bottomline? Chart patterns of the S&P 500 and FTSE 100 indices are forming bullish patterns of higher bottoms and higher tops. The bearish ‘rising wedges’ observed two weeks back appear to have been negated. Both indices are near previous tops, which could lead to profit booking. Both the US and UK economies are slowing down. It may be better to be cautious and safe than be bullish and sorry.

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