Monday, October 14, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 11, ‘13

S&P 500 Index Chart

S&P 500_Oct1113

The following remarks were made in last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index: “The bad news is that volumes on three down days were stronger, which is a sign of distribution. Bears are lurking, and may mount another attack at anytime.”

The bear attack was sharp and swift. The index dropped below its 20 day and 50 day EMAs, and the 1650 level intra-day. But the recovery was even sharper. The index climbed back into bull territory above all its three EMAs and closed above the 1700 level for the week.

Note that volumes dropped off as the index rose higher. Without volume support, the rally is unlikely to sustain. Daily technical indicators have turned bullish. MACD has moved up to touch its falling signal in positive territory. RSI is above its 50% level. Slow stochastic has risen to the edge of its overbought zone.

Initial claims of unemployment surged to 374,000 - its highest level in more than 6 months. Bulls were encouraged by the possibility of a resolution of the US fiscal impasse, as both parties made conciliatory noises. But if a deal isn’t worked out before Oct 17, bears will have a field day. Remain cautious.

FTSE 100 Index Chart


Short-term bearishness visible on the 6 months daily chart pattern of FTSE 100 index last week led to a drop into bear territory and a day’s close below the 200 day EMA. By the end of the week, the index recovered sufficiently to move up to the 6500 level where the 50 day EMA offered some resistance.

Daily technical indicators are showing signs of emerging from bearish zones. MACD has moved up a bit to touch its signal line in negative zone. RSI has risen sharply from its oversold zone, but hasn’t reached its 50% level yet. Slow stochastic has climbed out of its oversold zone.

An unexpected 1.1% fall in UK’s industrial output in Aug ‘13 and slowdown in factory output in Sep ‘13 may put the brakes on GDP growth estimates.

Bottomline? 6 months daily bar chart patterns of S&P 500 and FTSE 100 indices are recovering from month-long corrections. But the recoveries could be fleeting if the US fiscal impasse isn’t resolved over the next couple of days. Stay invested, but tighten stop-losses.

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