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Monday, September 24, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 21, ‘12

S&P 500 Index Chart

S&P 500_Sep2112

It was observed that technical indicators were looking overbought in last week’s analysis of the bar chart pattern of S&P 500 index. Such a condition usually precedes a correction or consolidation. It came as no surprise that the index consolidated sideways last week.

Technical indicators are bullish, but correcting overbought conditions. MACD has slipped down to touch its signal line in positive territory. RSI has dropped from its overbought zone. Slow stochastic is likely to follow suit.

In case the sideways consolidation turns into a correction – as it is showing signs of doing at the time of writing this post – support can be expected from the rising 20 day EMA (at about 1440) and stronger support from the 1425 level (previous tops in Apr and Aug ‘12 – that formed a bullish ascending triangle pattern).

The index is in a bull market. Dips can be used to add.

FTSE 100 Index Chart

FTSE_Sep2112

Negative divergences in technical indicators were observed in last week’s analysis of the bar chart pattern of FTSE 100 index. The index touched a new 5 months high, but the indicators failed to do so. A correction or consolidation was the expected outcome.

Technical indicators are bullish, but in corrective mode. MACD is about to move down to touch its rising signal line in positive territory. RSI is drifting downwards, but remains above its 50% level. Slow stochastic has slipped down from its overbought zone. The correction may continue a bit longer.

The index is in a bull market, and has been in an up trend since its Jun ‘12 bottom. Dips can be used to add, but with appropriate stop-losses.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are undergoing corrections in bull markets. Such corrections provide entry opportunities. But maintain trailing stop-losses to protect profits.

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