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Monday, August 5, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 02, ‘13

S&P 500 Index Chart

S&P 500_Aug0213

The daily bar chart pattern of S&P 500 index was looking overbought two weeks back. Negative divergences in all three technical indicators gave advance warning of a period of correction or consolidation.

The index corrected a bit after testing the 1700 level, only to form a small, bullish ‘rounding bottom’ pattern and then smoothly crossed above 1700 to close at a lifetime high of 1710. All three EMAs are moving up and the index is trading above them.

The bulls are back in control – but caution rather than euphoria should guide investment decisions near a lifetime high. Daily technical indicators are looking overbought, and showing negative divergences by failing to touch new highs.

The index is trading well above its 200 day EMA, and the distance between the 50 day and 200 day EMA is widening. Such a situation occurred during May ‘13 and was followed by a sharp correction.

Advance Q2 GDP number was better than expected at 1.7%; however, Q1 GDP was revised down to 1.1% from 1.8%. The US economy continues to grow slowly – but only because interest rates are artificially low and QE3 is keeping the liquidity flow intact.

Maintain a trailing stop-loss – just in case the bull party comes to an end. Falling volumes when the index hit a lifetime high is a warning sign.

FTSE 100 Index Chart

FTSE_Aug0213

The 6 months daily bar chart pattern of FTSE 100 index has been consolidating within a 200 points range for the past two weeks, with a slight upward bias. Good news for the bulls is that all three EMAs are rising and the index is trading above them.

Bad news is that the index formed a ‘reversal day’ pattern (higher high, lower close) on Fri. Aug 2 ‘13 – which may be the start of a corrective move.

Daily technical indicators are still bullish, but showing signs of weakening upward momentum. MACD is positive and touching its signal line. RSI is falling towards its 50% level. Slow stochastic has slipped down a bit after touching the edge of its overbought zone.

All three indicators are showing negative divergences by failing to move higher with the index. Some more consolidation or correction is likely.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are back in long-term bull markets, but showing signs of technical weakness. Stay invested, but maintain suitable stop-losses.

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