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Monday, November 19, 2012

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 16, ‘12

S&P 500 Index Chart

S&P 500_Nov1612

Bears have tightened their grip on the daily bar chart pattern of S&P 500 index. Four days in a row, the 200 day EMA provided good support to the falling index. But on Wed. Nov 14 ‘12, heavy selling pushed the index 20 points (1.5%) below its 200 day EMA, and also below the stop-loss level of 1360.

By the end of the week, the index pulled back to the 1360 level. Technically, the breach of the 200 day EMA will be confirmed if the index closes below 1335 (applying the 3% ‘whipsaw’ rule). Note how the index ‘whipsawed’ twice in May and Jun ‘12 after dropping below the 200 day EMA.

However, the uncertainty about the ‘fiscal cliff’, plus the Eurozone recession calls for caution. If you didn’t sell when the 200 day EMA and the 1360 level got breached, you can sell on a likely pullback towards the 200 day EMA. Let the correction play out. Re-enter on a convincing move above the 200 day EMA.

Technical indicators are bearish, and looking oversold. MACD is below its signal line and falling deeper into negative territory. RSI is trying to emerge from its oversold zone. Slow stochastic is well inside its oversold zone. An upward bounce towards the 200 day EMA is possible.

Keep a close watch on the support level of 1270 from where the index had bounced up in Jun ‘12. A drop below 1270 may end the bull market.

FTSE 100 Index Chart


The one year daily bar chart pattern of FTSE 100 index received token support from its 200 day EMA before dropping like a stone below the long-term moving average and the stop-loss level of 5625.

The breach of the 200 day EMA will be confirmed only on a close below 5550 (applying the 3% ‘whipsaw’ rule), which coincidentally happens to be the downward target of the triple-top reversal pattern that formed a week ago.

Technical indicators are looking bearish, and a bit oversold. MACD is falling below its signal line in negative territory. RSI has dropped to the edge of its oversold zone. Slow stochastic is deep inside its oversold zone. Any upward bounce towards the 200 day EMA is likely to be used by the bears to sell.

Bottomline? Chart patterns of S&P 500 and FTSE 100 indices have breached supports from their respective 200 day EMAs after sharp corrections following ‘triple top’ reversal patterns. Bears are tightening their grips. Let the correction play out, and keep a close watch on the Jun ‘12 lows.

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