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Monday, September 30, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 27, ‘13

S&P 500 Index Chart

S&P 500_Sep2713

The 6 months daily bar chart pattern of S&P 500 index corrected down to its 20 day EMA last week. At the time of writing this post, it has further corrected down to its 50 day EMA. Is this the end of the bull market? Not by a long shot. Look at the rising 200 day EMA. The bull market is alive and well.

Is the correction over? Not yet. The daily technical indicators have turned bearish, but not looking oversold yet. MACD is positive, but has crossed below its signal line. RSI has slipped below its 50% level. Slow stochastic is falling below its 50% level.

Such corrections help to improve the technical ‘health’ of price charts, allowing them to rise to new highs. So, the dip is an opportunity to add to existing holdings. The index is barely 3% below its lifetime high. Some amount of caution is warranted near lifetime highs. In other words, keep suitable stop-losses to avoid getting blind-sided by bears.

The US economy seems to be progressing slowly on the recovery path. Unemployment is coming down. Corporate profits are up. So are new home sales. Q2 GDP grew at a modest 2.5%. Debt ceiling concerns and the possibility of a government shutdown is keeping the bears active. All is likely to be well after some last minute brinkmanship by legislators.

FTSE 100 Index Chart


In last week’s analysis, the 6 months daily bar chart pattern of FTSE 100 index was struggling to move above the 6600 level. Signs of distribution had given early warning of a bear attack. The index dropped below its 20 day and 50 day EMAs, but managed to close above the 6500 level.

Daily technical indicators are turning bearish. MACD is barely positive, and touching its signal line. RSI has slipped below its 50% level. So has Slow stochastic. The correction is likely to continue till uncertainty regarding the US debt ceiling issue gets resolved.

At the time of writing this post, the index is trading below the 6500 level. However, it is trading above its rising 200 day EMA. The long-term bull market is under no immediate threat.

The UK economy is showing signs of recovery. The housing market is picking up with home prices rising moderately. Manufacturing and construction indices are strengthening – as per this article.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are facing bull market corrections. Such corrections provide adding opportunities. But be selective, and maintain suitable stop-losses.

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