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Monday, October 8, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 05, ‘12

S&P 500 Index Chart

S&P 500_Oct0512

The 1 year daily bar chart pattern of S&P 500 index clearly shows an unfolding bull market. All three EMAs are rising in tandem and the index is trading above them. After a brief drop below the 20 day EMA that corrected overbought conditions, the index appears to have resumed its upward march. The 3 years high of 1475 – touched last month – may get surpassed soon.

Technical indicators are bullish, but showing some signs of weakening upward momentum. MACD is positive but below its falling signal line. RSI is above its 50% level but turning down. Slow stochastic has risen sharply above its 50% level. A dip to the 20 day EMA is a possibility. Volumes need to pick up for the rally to continue.

Initial claims of unemployment was a bit higher than the previous week’s revised number, but slightly lower than consensus expectations. But the unexpected drop in overall unemployment below 8% has to be taken with a pinch of salt. A silver lining has been the increase in residential real estate prices for the 4th month in a row. US economic growth may be improving – but way too slowly.

FTSE 100 Index Chart


The 1 year daily bar chart pattern of FTSE 100 index has recovered smartly from a drop below its 50 day EMA, and appears ready to test its 52 week high touched in Mar ‘12. All three EMAs are rising and the index is trading above them – which signifies a bull market.

Technical indicators are looking bullish. MACD is positive and about to cross above its signal line. RSI has moved above its 50% level. Slow stochastic has climbed quickly above its 50% level from its oversold zone.

So, is this a good time to buy? The best time to buy is when one has the money. But it is better to be a little circumspect when an index (or stock) is near its 52 week high. Also, MACD formed a head-and-shoulders reversal pattern while the FTSE moved up to touch higher tops. The pattern may or may not play out – because technical analysis is not a science. However, it may be prudent to pay some respect to a reversal pattern, till it gets negated.

UK’s economy is still struggling to hit the growth path, as is evident from the drop in manufacturing activity in September. So, there is no reason to be very bullish - despite the upward movement in the stock market for the past 4 months.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices have corrected overbought conditions and look poised to touch new highs. It is better to be cautiously optimistic rather than be gung-ho bullish when indices approach new highs. US and UK economies are not in the pink of health.

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