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Monday, March 18, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Mar 15, ‘13

S&P 500 Index Chart

S&P 500_Mar1513

The 6 months daily bar chart pattern of S&P 500 reached within handshaking distance of its all-time high touched back in 2007. Some profit booking near an all-time high is to be expected. But the huge volume surge on a down-day last Friday (Mar 15 ‘13) may be a sign of distribution.

The previous occasion when such high transaction volumes were witnessed was back in Dec ‘12, and it heralded a brief correction that primed the index for a sharp upward surge. Will the pattern get repeated?

May be not. Note that in Dec ‘12, the index had corrected down close to its 200 day EMA. Now it is more than 100 points above its 200 day EMA. Such a big gap between the S&P 500 index and its 200 day EMA has not sustained for long in the past.

Daily technical indicators are correcting from overbought conditions, but remain bullish. MACD is positive and above its signal line, but is beginning to move down. RSI faced resistance from the edge of its overbought zone, and has started to fall. Slow stochastic is well inside its overbought zone but is sliding down.

At the time of writing this post, the index seems already in a corrective mood. No need to sell in a panic. Stay invested, with a stop-loss at the rising 50 day EMA.

FTSE 100 Index Chart

FTSE_Mar1513

The 6 months bar chart pattern of FTSE 100 surged past the 6500 level to touch a 4-yr high of 6534, but could not close the week above 6500. Strong volumes on Friday (Mar 15 ‘13), which was a down-day, may be the start of another period of correction or consolidation.

Note that all three daily technical indicators are showing negative divergences by failing to touch new highs with the index. At the time of writing this post, the index was down about 0.5%. However, technical indicators are still in bullish zones.

The index is 500 points above its rising 200 day EMA. Such a wide gap has not been sustainable in the past.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 have risen to touch new bull market highs again. Negative divergences are visible in daily technical indicators. Widening gaps between the indices and their long-term moving averages are not sustainable for long. Stay invested – but maintain trailing stop-losses to protect profits.

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