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Monday, June 3, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 31, ‘13

S&P 500 Index Chart

S&P 500_May3113

The 6 months daily bar chart pattern of S&P 500 index tried to stay above its 20 day EMA in a holiday-shortened week, but dropped sharply on high volumes on Fri. May 31 and closed lower for the second straight week. High volumes on a down-day is a bearish sign.

However, the 50 day and 200 day EMAs are still rising and the index is trading above them. So, the correction should be treated as a bull market correction – which means it is an adding opportunity.

Daily technical indicators are showing bearishness. MACD is positive, but falling rapidly below its signal line. RSI is resting at its 50% level, but looks ready to enter bearish zone. Slow stochastic is already below its 50% level in bearish zone, and heading down towards its oversold zone. The correction isn’t over yet.

The US economy continues its laboured progress of two steps forward and one step back. Initial jobless claims rose above the 350,000 mark. Consumer spending dropped a bit. But inflation was lower than expected, which means tapering down of QE3 may not happen soon. That should help the bullish cause.

FTSE 100 Index Chart


The 6 months daily bar chart pattern of FTSE 100 index shows a drop below the 20 day EMA on a volume surge. The index closed lower for the second week in a row. The index is trading almost 400 points above its rising 200 day EMA, so the bull market is intact.

Daily technical indicators are turning bearish. MACD is positive, but falling below its signal line. RSI has slipped below its 50% level. Slow stochastic has fallen sharply below its 50% level and looks all set to enter its oversold zone. A test and possible breach of the 50 day EMA is likely. (At the time of writing this post, the index is down more than 100 points.)

Britain's manufacturers enjoyed a stronger than expected rebound in business last month, fuelling hopes that the sector will boost overall economic growth this quarter. However, an ILO report warned that the UK is trapped in the "vicious spiral" of falling real wages and depressed investment.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of corrections after touching new highs. Such bull market corrections provide opportunities to add to existing holdings. But maintain stop-losses to protect the downside.

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