Monday, November 12, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 9, ‘12

S&P 500 Index Chart

S&P 500_Nov0912

The bull market in the 6 months bar chart pattern of S&P 500 index is looking shaky. The US president’s re-election was supposed to strengthen the hands of the bulls by removing the uncertainty of who the next president would be. Instead, the uncertainty about the ‘fiscal cliff’ is suddenly looming large.

The index had already formed a ‘triple top’ reversal pattern – some would say that it is an example of the stock market discounting bad news in advance. The downward target of 1400 was breached in a high-volume fall. The index dropped lower to test support from the 200 day EMA before bouncing up briefly.

The good news is that the support from the long-term moving average held. The bad news is that the 20 day EMA has crossed below the 50 day EMA, and the 50 day EMA has formed a bearish ‘rounding top’ pattern. Volumes are also showing bear domination, with down-day volumes exceeding up-day volumes. Hold with a stop-loss at 1360.

Technical indicators are looking quite bearish. MACD is below its falling signal line, and falling deeper into negative territory. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic has fallen back inside its oversold zone. Any upward bounce is likely to be used by the bears to sell.

Economic recovery continues to be slow and labourious. Initial unemployment claims dropped some more – but it could be partly due to ‘Sandy’, which prevented people from going out to file claims. Consumer sentiment is up a bit. But ECRI’s WLI (Weekly Leading Index) has fallen. If Obama fails to negotiate the ‘fiscal cliff’, a recession is likely in 2013.

FTSE 100 Index Chart


The 6 months bar chart pattern of FTSE 100 reminds me of one of the numerous quotes attributed to Yogi Berra, former player and manager of the NY Yankees: “It’s deja vu all over again.” The index has formed a ‘triple top’ reversal pattern, and dropped to its 200 day EMA before bouncing up.

The downward target of the ‘triple top’ is 5550. If the index falls there, it may be ‘game over’ for the bulls. Technical indicators are looking bearish. MACD is below its signal line, and has slipped into negative territory. RSI fallen below its 50% level. Slow stochastic has dropped to the edge of its oversold zone.

Note that MACD and RSI touched progressively lower tops while the FTSE was forming its ‘triple top’. The negative divergences may cause a deeper correction. Any upward bounce may induce bear selling. Hold with a stop-loss at 5625.

A GDP growth of 1% in Q3 meant that UK’s economy had emerged from a double-dip recession. However, poor retail sales and slowdown in the services sector have raised the spectre of a triple-dip recession.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices are seeking support from their respective 200 day EMAs after sharp corrections following ‘triple top’ reversal patterns. Bull rallies will be under threat if the supports are breached. Hold with strict stop-losses.

No comments: