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Monday, September 2, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 30, ‘13

S&P 500 Index Chart

S&P500_Aug3013

The concluding comments in a technical analysis of the daily bar chart pattern of S&P 500 index two weeks back were: “A deeper correction is possible. Partial profit booking may be in order…” The index embarked on a small rally that almost reached the 1670 level but faced resistance from the falling 20 day EMA. It formed a ‘reversal day’ pattern (higher high, lower close), and dropped to the 1630 level.

The index is trying to find a bottom at the 1630 level. The 20 day EMA is ready to cross below the 50 day EMA, and both EMAs are falling. Higher volumes on down days means the bears are in no mood to give up yet. However, the index is trading well above the rising 200 day EMA, so the long-term bull market is intact.

Daily technical indicators are bearish, and not showing any signs of a turnaround yet. MACD is falling below its signal line in negative territory. RSI is moving sideways above its oversold zone. Slow stochastic is inside its oversold zone. More downside is likely.

Q2 GDP was revised upwards from 1.7% to 2.5% – thanks to higher exports of goods and services. Corporate profits are rising despite the slow economic recovery. Initial jobless claims continue to trend down. However, weak consumer spending, and negative growth in housing starts and existing home sales are worrying signs. Wait for the correction to play out.

FTSE 100 Index Chart

FTSE_Aug3013

Two weeks ago, technical indicators of the daily bar chart pattern of FTSE 100 were looking bearish. A deeper correction was expected. Instead, the index entered a rectangular consolidation pattern between 6400 and 6500. Rectangles tend to be unreliable patterns, which means the break out from the pattern can be in either direction. But they tend to be continuation patterns, so the likely break out is downwards.

Daily technical indicators are bearish. MACD is negative and falling below its signal line. RSI is falling below its 50% level. Slow stochastic is about to re-enter its oversold zone. Wait for the break out to initiate action. Note that the 200 day EMA is still rising and the index is trading above it. The long-term bull market is still intact.

UK’s manufacturing sector is getting new orders, and business is booming at pubs and restaurants. These are encouraging signs of economic recovery.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are in the midst of bull market corrections. Wait for the corrections to play out before considering re-entry.

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