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Monday, June 17, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 14, ‘13

S&P 500 Index Chart

S&P 500_Jun1413

Two weeks back the daily bar chart pattern of S&P 500 index had closed at 1631 - below its 20 day EMA. The index had earlier touched a high of 1687 on May 22 ‘13, but formed a ‘reversal day’ pattern (higher high, lower close) on a volume spurt – ending the intermediate rally from the Apr ‘13 low of 1536.

During the past 2 weeks, the index has consolidated sideways in a range between 1600 and 1650, with the rising 50 day EMA providing good support. Note that on Jun 6 ‘13, the index dropped to an intra-day low of 1598 – which corresponded almost exactly with the highs touched during Apr ‘13. This is another example of how previous tops tend to provide support.

Daily technical indicators are looking bearish. MACD is falling below its signal line, and is barely positive. RSI is oscillating around its 50% level. Slow stochastic bounced up from its oversold zone, but is in bearish zone (below its 50% level).

All three technical indicators are showing negative divergences by touching lower bottoms (than the ones touched in Apr ‘13) while the index touched a higher bottom. Some more correction/consolidation is likely. The index is trading above its rising 50 day and 200 day EMAs – so there is no immediate threat to the bull market.

The growth of the US economy continues to be unexciting. Retail sales rose a bit. Initial jobless claims dropped more than expectations. But industrial production remains lacklustre.

FTSE 100 Index Chart

FTSE_Jun1413

Two weeks ago, bearish technical indicators had led to the following comment about the daily bar chart pattern of the FTSE 100 index: “A test and possible breach of the 50 day EMA is likely.” The index not only breached its 50 day EMA, but dropped all the way to its 200 day EMA last week before bouncing up.

While the bull market is still intact, keep a close watch on the 6200 level, which had earlier provided support during Feb ‘13 and Apr ‘13. A breach of 6200 would also mean a breach of the 200 day EMA – which would be bearish.

Daily technical indicators are bearish but looking oversold. MACD is falling below its signal line towards its oversold zone. RSI is trying to bounce up from the edge of its oversold zone. Slow stochastic is well inside its oversold zone. All three indicators are showing negative divergences by touching lower bottoms than the ones touched in Apr ‘13.

The upward bounce may last a little longer. Overhead resistance is likely from the falling 20 day and 50 day EMAs. The index may correct/consolidate some more before deciding its next move.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are still in the midst of corrections after touching new highs in May ‘13. Both indices have bounced up from support levels, but more correction/consolidation is likely. Bull markets are intact, so the corrections are adding opportunities. However, maintain suitable stop-losses.

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