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Monday, October 15, 2012

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

S&P 500 Index Chart

S&P 500_Oct1212

In last week’s analysis of the daily bar chart pattern of the S&P 500 index, it was observed that technical indicators were bullish but showed weakening upward momentum. Volumes needed to pick up for the rally to sustain. A drop to the 20 day EMA seemed possible.

The S&P 500 chart dropped to its 50 day EMA, and has turned bearish by forming a small double-top reversal pattern. Friday’s (Oct 12) close below the ‘valley’ level of 1430 (touched on Sep 26), and lower volumes during the formation of the second top at 1471 (on Oct 5) has confirmed the double-top. A downward target of 1385 is a possibility.

Technical indicators are looking bearish, which means the support from the 50 day EMA may not hold. MACD is still positive, but falling rapidly below its signal line. RSI has dropped below its 50% level. Slow stochastic has entered its oversold zone. Any upward bounce from the current level can be used to book profit.

Economic indicators are not rosy. Initial unemployment claims dropped below the 340,000 mark, which was celebrated by the market before realisation dawned that one large state did not report its figures! New manufacturing orders are sliding. The trade deficit is widening – thanks to a drop in exports of US goods – which will hurt GDP growth.

FTSE 100 Index Chart


The uptrend on the 6 months daily bar chart pattern of the FTSE 100 is on the verge of ending as the index touched a lower top of 5885 (on Oct 5) and started sliding. A drop below its previous low of 5738 (touched on Oct 1) will form a bearish pattern of lower tops and lower bottoms.

Technical indicators are starting to look bearish. MACD is still positive but gradually falling below its signal line. RSI is oscillating about its 50% level. Slow stochastic has dropped below its 50% level. If the index falls below its 200 day EMA, a new bear phase may start.

UK’s economy may emerge from a double-dip recession, but growth remains weak. Manufacturing output dipped in Aug ‘12 and the trade deficit widened sharply due to lower exports and higher oil imports. But rising consumer demand may raise hopes of a recovery in GDP growth.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are still in corrective modes. Further fall in both indices may end the uptrends from Jun ‘12 lows. Book part profits, or hold with stop-losses at respective 200 day EMAs.

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