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Monday, October 1, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 28, ‘12

S&P 500 Index Chart

S&P 500_Sep2812

The following remarks in last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index, bear repeating: “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…”

After dropping below its 20 day EMA to the 1430 level during the week, the index closed almost exactly on its 20 day EMA. The good news is that the uptrend from the Jun ‘12 low is intact. The bad news is high volumes on down days last week. A drop below the 50 day EMA will be bearish.

Technical indicators have corrected overbought conditions, and beginning to look bearish. MACD is positive, but falling below its signal line. RSI bounced up from its 50% level, but is moving down again. Slow stochastic has dropped sharply below its 50% level towards its oversold zone. The correction may not be quite over yet.

Economic data hasn’t been cheerful. Final estimate of Q2 GDP growth was an annualised 1.3% – lower than the earlier estimate of 1.7%. Durable goods orders dropped more than 13% – much worse than estimates. New home sales were weaker than expected. The silver lining was soaring corporate profits.

FTSE 100 Index Chart

FTSE_Sep2812

The 6 months daily bar chart pattern of the FTSE 100 index dropped below its 50 day EMA but took support on the uptrend line (not shown) connecting the Jun ‘12 and Sep ‘12 bottoms. A further fall will be bearish.

Technical indicators are looking bearish. MACD is falling below its signal line in positive zone. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone. At the time of writing this post, the FTSE 100 has bounced up strongly, and all seems well with the uptrend and the bull market.

UK’s economy may come out of a double-dip recession after 9 months – if economic experts are to be believed. But the economy continues to stutter and stumble, as manufacturing activity contracted in September.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are undergoing bull market corrections, but appear to have found supports. Such corrections improve ‘technical health’ of charts and provide entry opportunities.

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