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Monday, February 11, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 08, ‘13

S&P 500 Index Chart

S&P 500_Feb0813

In last week’s analysis of the daily bar chart pattern of S&P 500, it was observed that a sideways consolidation was in progress. Last Friday (Feb 8 ‘13), the index broke out higher to touch another new 3 year high.

But the break out volume was the lowest of the week. All three technical indicators, which are in or near their overbought zones, failed to touch new highs with the index. The combined negative divergences may be hinting at a correction.

Note that the market can stay overbought for long periods – more so when QE3 is in progress. The bull market is unlikely to end any time soon – as per this article.

Hold, with a trailing stop-loss to protect your profits.

FTSE 100 Index Chart

FTSE_Feb0813

Last week, the daily bar chart pattern of FTSE 100 seemed to be defying gravity (just as the S&P 500 appears to be doing) as it kept moving ever higher despite overbought conditions.

The following remarks were made: “…the index is trading 500 points above its 200 day EMA. That is a red flag. At the time of writing this post, FTSE was down more than 80 points. Worse may follow. No need to sell in a panic. It is a bull market correction, and the dip can be used as an adding opportunity.”

The index corrected down to its 20 day EMA, where it received good support and bounced up (though Friday’s up-day volume – not shown in chart - was lower than Thursday’s down-day volume). MACD is positive; both RSI and slow stochastic are above their respective 50% levels; but all three daily technical indicators are falling – which means the correction may not be over yet.

If you decide to use this dip to add, maintain a tight stop-loss.

Bottomline? The daily bar chart pattern of S&P 500 index touched a new 3 year high and is looking ripe for a correction. The FTSE 100 index has started correcting after reaching a 3 year high. Dips can be used to add, but with tight stop-losses.

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