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Monday, January 28, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 25, ‘13

S&P 500 Index Chart

S&P 500_Jan2513

The 1 year daily bar chart pattern of S&P 500 has crossed above the 1500 level to a new 3 years high on a flood of liquidity released by three rounds of Quantitative Easing. The index is less than 5% below its all-time high touched in Oct ‘07.

Volumes have picked up, but continues to slide as the index moves higher. A bull rally needs volume support to sustain. All three EMAs are rising, which is a bullish sign, but the index is trading more than 100 points above its rising 200 day EMA. The last time it did so was back in Sep ‘12 – a 120 points correction followed.

All three daily technical indicators are in overbought territory – as they were in Sep ‘12. The same pattern may or may not repeat, but it is better to err on the side of caution. The slow stochastic can remain inside its overbought (or oversold) zone for extended periods. Not so for the RSI.

The odds of a correction/consolidation is increasing by the day.

FTSE 100 Index Chart

FTSE_Jan2513

The 1 year daily bar chart pattern of FTSE 100 has shot up to a 3 years high, just below the 6300 level. Like the S&P 500 index, it is trading way above its rising 200 day EMA. Unlike the S&P 500 index, it is trading more than 10% below its all-time high touched back in Jan 2000.

All three daily technical indicators have reached new highs along with the index, however all three are also looking quite overbought. A correction or consolidation may be around the corner – though an index (or stock) can stay overbought for long periods.

The more adventurous can ride the bull surge with a trailing stop-loss. Conservative investors can book partial profits.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices have reached 3 year highs. This is not an occasion to celebrate by jumping in with both feet. Stay invested with suitable stop-losses, and await dips to add.

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