Monday, April 1, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Mar 28, ‘13

S&P 500 Index Chart

S&P 500_Mar2813

The inevitable happened. The 6 months daily bar chart pattern of S&P 500 touched a new all time high of 1570. Time to celebrate and open the bubbly? Depends on your viewpoint. From the lows of 2009, the climb seems absolutely spectacular. From the top, it seems like one slip could lead to a devastating fall. That is the challenge of stock markets. There are always polar opposite views.

Unless an investor is disciplined and nimble-footed, taking a ‘wrong’ view can be injurious to one’s wealth. What should one do at the very top? Stay invested, but tighten stop-losses. Buying isn’t recommended because the downside risk is greater – specially since the index is trading more than 100 points above its 200 day EMA. Selling off may be counter-productive if the index continues to defy gravity; but taking some profits off the table won’t be a bad idea.

All four technical indicators are looking bullish – but showing negative divergences by failing to move higher with the index. A correction/consolidation may be around the corner. Liquidity can keep propelling the index ever higher. If corporate earnings fail to catch up with the progress of the index, fortunes could turn around quickly.

Weekly jobless claims moved up again. GDP growth was a measly 0.4%. All is not yet well with the US economy.

FTSE 100 Index Chart


The 6 months daily bar chart pattern of FTSE 100 index completed a decent (3%) correction from its Mar ‘13 top that found good support from its rising 50 day EMA. The index may be getting ready to scale new highs.

Daily technical indicators are looking bearish, but there are signs of a turnaround. MACD is below its signal line in positive zone, but has stopped falling. RSI has dropped below its 50% level. ROC is negative, but turning up. Slow stochastic is below its 50% level, but turning up.

The index is in a bull market – despite the sad state of the UK economy. Such dips can be used to add.

Bottomline? The S&P 500 index touched an all-time high and looks ripe for a correction. The FTSE 100 index has undergone a decent correction and looks ready to move higher. Both indices are in bull markets despite their weak economies. Stay invested, and use dips to add – but with stop-losses in place. Downside risk increases as indices move higher.

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