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Monday, April 8, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 05, ‘13

S&P 500 Index Chart

S&P 500_Apr0513

Negative divergences observed in all four daily technical indicators of the S&P 500 index last week had led to the warning that a correction/consolidation was around the corner. Some profit booking was advised.

The index rose to touch another new high of 1574 on Apr 2 ‘13, but slipped more than 2% to fall below the 20 day EMA to touch 1540 on Apr 5 ‘13, before recovering to close about 1% lower for the week. Is this the beginning of a deeper correction?

Daily technical indicators are suggesting more downside, but haven’t turned bearish yet. MACD is positive, but has started falling below its signal line. RSI has just slipped below its 50% level. ROC is resting on its ‘0’ line. Slow stochastic is falling towards its 50% level. Higher volumes on down days also suggest that the correction may not be over.

Dismal employment data was blamed for the correction, but the market was looking for an excuse to sell after touching an all-time high. The index is in a bull market. Such dips provide adding opportunities.

FTSE 100 Index Chart

FTSE_Apr0513

In a holiday-shortened week, the 6 months daily bar chart pattern of FTSE 100 attempted a futile rally that stalled near the 6500 level. Bears got active and the index crashed through its 20 day and 50 day EMAs and almost dropped to the 6200 level, before recovering a bit.

The index lost 2.5% on a weekly closing basis. More importantly, it has formed a bearish pattern of lower tops and lower bottoms. All four daily technical indicators are not only looking bearish, but are showing negative divergences by touching lower bottoms than the one’s touched in Dec ‘12, while the index touched a higher bottom.

Any attempt by the index to move up towards its 50 day EMA, is likely to be met with more selling. Disappointing manufacturing data continues to show weakness in the UK economy. However, improvement in the services data may prevent a triple-dip recession.

Bottomline? The S&P 500 index is facing profit-booking after touching an all-time high. FTSE 100 is in the midst of a stronger correction after touching a 5 yr high. Both indices are trading above their rising 200 day EMAs, and are in bull markets. Bull market corrections are adding opportunities. But don’t forget to use stop-losses – just in case the tide turns.

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