Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 21, ‘13

S&P 500 Index Chart

The following comments were made in last week’s analysis of the daily bar chart pattern of S&P 500 index: “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 rose to touch an intra-day high of 1654 on Tue. Jun 18 ‘13, but formed a bearish ‘rising wedge’ pattern (marked by dark blue lines), from which it dropped sharply below the 1600 support level on a volume spurt. Friday’s upward bounce failed to cross above the 1600 level despite strong volumes – highest volumes seen since Dec ‘11 – which means the support level may have turned into a resistance level.

Daily technical indicators are looking bearish. MACD has fallen into negative zone below its signal line. RSI is moving down towards its oversold zone. Slow stochastic has already entered its oversold zone. At the time of writing this post, the index is trading 1.5% below last week’s closing level of 1592.

A test of support from the rising 200 day EMA is on the cards. A breach of the long-term moving average may put the bull market in jeopardy. Wait for the correction to play out. Initial jobless claims and manufacturing data continues to signal modest economic growth.

FTSE 100 Index Chart

The following comments made in last week’s analysis of the daily bar chart pattern of FTSE 100 index bear repetition: “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.”

The upward bounce from the 200 day EMA took the index up to the 6400 level before the bears took charge. High volume selling pushed the index well below the 6200 support level and the 200 day EMA. At the time of writing this post, the index is trading more than 1.5% below Friday’s close.

Daily technical indicators are looking bearish and oversold. MACD is falling below its signal line and ready to enter its oversold zone. RSI is at the edge of its oversold zone. Slow stochastic has remained inside its oversold zone for most of the month.

If the index falls below the 6000 level – which is the next support level – it can drop to the next support zone between 5500 and 5800. Caution is advised.

Bottomline? The 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of strong corrections after touching new highs in May ‘13. Both indices have breached support levels, and more correction is likely. Wait for the corrections to play out.