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Monday, March 4, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Mar 01, ‘13

S&P 500 Index Chart

S&P 500_Mar0113

The 6 months daily bar chart pattern of S&P 500 index has been in a corrective mode since touching a high of 1530 in the previous week. Negative divergences in all three technical indicators had warned of a correction or consolidation.

The index bounced up after receiving good support from its rising 50 day EMA, and has been consolidating sideways since then. Bulls may be worried by the higher volumes on down days during the past couple of weeks – which is a sign of distribution.

The index is trading well above its rising 200 day EMA, which often leads to a deeper correction. Daily technical indicators are mildly bullish. MACD is moving sideways below its signal line in positive zone. Both RSI and slow stochastic are above their respective 50% levels, but also moving sideways.

The economy continues to mend, but ever so slowly. Q4 GDP number was a negligible 0.1%. Initial Unemployment claims dropped below the 350,000 mark. ISM manufacturing index rose higher than expectations. However, ‘sequestration’ (automatic budget spending cuts) may push the economy into a recession.

FTSE 100 Index Chart

FTSE_Mar0113

The 6 months daily bar chart pattern of FTSE 100 index has been consolidating sideways after crossing the 6400 level on an intra-day basis in the previous week.

Note that all three daily technical indicators touched much lower tops. The combined negative divergences pushed the index below its rising 20 day EMA for a day. The brief correction appears to have improved the technical health of the FTSE chart.

A matter of concern for the bulls is that the index is trading almost 450 points above its 200 day EMA. Such a wide gap between the index and its long-term moving average is often a prelude to a deeper correction.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are consolidating after touching new bull market highs. Both indices are trading well above their long-term moving averages. Some caution should be exercised. Stay invested.

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