Monday, August 12, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 09, ‘13

S&P 500 Index Chart

S&P 500_Aug0913

The daily bar chart pattern of S&P 500 had touched and closed at a life-time high of 1710 on Aug 2 ‘13, but in a technical analysis last week, blog readers were warned that “caution rather than euphoria should guide investment decisions near a lifetime high.” Daily technical indicators were looking overbought and showing negative divergences.

It came as no surprise that the index slipped below the 1700 level, but it has received good support from its 20 day EMA so far. Will the support hold, or will the index slip down towards its rising 50 day EMA? Keep a watch on the 1680 level; a breach may lead to further correction.

Daily technical indicators are showing signs of weakness, though they remain in bullish zones. MACD is falling below its signal line in positive territory. RSI is moving sideways above its 50% level. Slow stochastic appears to be resting on its 50% level. The index may consolidate a bit before deciding on its next move.

Despite weak corporate earnings, improving housing and job markets (though mostly part-time hiring is going on) are keeping sentiments positive for the index. The trade deficit number appeared good – but it was more due to falling imports. Positive consumer sentiment is not getting translated into higher consumption. The economic recovery remains painfully slow.

FTSE 100 Index Chart


The following comments were made in last week’s technical analysis of the daily bar chart pattern of the FTSE 100: “… 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… All three indicators are showing negative divergences by failing to move higher with the index. Some more consolidation or correction is likely.”

The index dropped below its 20 day EMA and tested support from its 50 day EMA, before bouncing up above all three EMAs and back into bull territory. However, volumes have not been encouraging, and the index may struggle to cross past the 6600 level.

Daily technical indicators are looking bearish, but showing some signs of turning around. MACD is positive, but falling below its signal line. RSI is rising towards its 50% level, but has formed a bearish pattern of lower tops and lower bottoms. Slow stochastic moved sharply below its 50% level, but has paused in its fall. The index may consolidate some more before trying to move up.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but showing technical weakness. The long and slow road to recovery of the US and UK economies does not justify an out-and-out bullish outlook. Stay invested, but maintain suitable stop-losses.

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