Monday, September 17, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 14, ‘12

S&P 500 Index Chart

S&P 500_Sep1412

In last week’s analysis, a pullback to the support/resistance level of 1425 on the daily bar chart pattern of the S&P 500 index was expected. Instead, the index consolidated between 1430 and 1440 before spiking up on good volume support to touch a new 3 years high of 1475 – thanks mainly to the QE3 announcement from Ben Bernanke.

All three EMAs are rising in tandem and the index is trading well above them – the sign of a runaway bull market. Technical indicators are bullish to the point of being overbought. MACD is moving up above its signal line in positive territory. RSI is inside its overbought zone – where it doesn’t like to stay for too long. Slow stochastic is also inside its overbought zone, but showing negative divergence by touching a lower top.

The index may consolidate a bit before its next up move.

FTSE 100 Index Chart


In last week’s analysis of the daily chart pattern of the FTSE 100 index, technical indicators were turning bullish – which led to the following observation: “The index needs to cross above the 5900 level for bulls to regain complete control.”

The US Fed’s announcement of unlimited buying of mortgage-backed securities provided just the impetus bulls needed to push the index past the 5900 mark on a strong volume surge (not shown in chart). Any pullback towards the Aug ‘12 top of 5876 can be used to add.

Technical indicators are looking bullish. MACD is positive and above its signal line. RSI is rising above its 50% level. Slow stochastic has entered its overbought zone. Both MACD and slow stochastic touched lower tops while the FTSE rose higher. RSI also failed to move higher. Combined negative divergences are hinting at a correction or consolidation.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are back in the control of bulls – thanks to promises of unlimited liquidity from the US Fed and the ECB. Underlying economic growths in US and UK remain dismal. As indices keep rising higher, upside risk increases. Two ways to protect profits are partial profit booking (for risk averse investors) and staying invested with trailing stop-losses (for brave hearts).

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