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Monday, November 4, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 01, ‘13

S&P 500 Index Chart

S&P 500_Nov0113

The daily bar chart pattern of S&P 500 index rose to touch a new life-time high of 1775 on Oct 30 ‘13, but formed a ‘reversal day’ pattern (higher high, lower close) that ended the Oct ‘13 leg of the up move. In last week’s analysis, negative divergences were observed in all three technical indicators - which warned of an impending correction.

Volumes during the week were highest on Oct 31, which was a down-day – but the index recovered to close marginally higher on a weekly basis. Periodic profit booking has helped to improve the technical ‘health’ of the chart – allowing it to touch new life-time highs on a regular basis.

Daily technical indicators are correcting overbought conditions, but remain bullish. MACD is about to drop from its overbought zone. RSI has moved down after touching the edge of its overbought zone. Slow stochastic has formed a small double-top reversal pattern, and looks ready to fall from its overbought zone.

The correction may continue a bit longer, but there is no threat to the bull market. Note the bullish pattern of higher tops and higher bottoms and a rising 200 day EMA during the past year. Maintain a trailing stop-loss and ride the bull. Dips can be used to add to existing positions.

The economy continues to muddle along – initial unemployment claims fell below the 350,000 mark but job growth remains slow; ISM’s manufacturing index rose marginally; housing and automotive sectors are weak. The QE3 tapering plan may be kept in abeyance for a while.

FTSE 100 Index Chart

FTSE_Nov0113

The 1 yr daily bar chart pattern of FTSE 100 rose past the 6800 level to touch a 5 months high of 6820 before undergoing a bout of profit booking. The index still managed to close marginally higher on a weekly basis. The correction should help the index to gather strength and cross its 52 week high of 6876 touched on May 22 ‘13.

All three EMAs are rising and the index is trading above them – which is the sign of a bull market. Note that the 200 day EMA has been rising during the past year, and the index has mostly traded above it – except for brief spells in Jun and Oct.

Daily technical indicators are bullish, but correcting overbought conditions. MACD has stopped rising, but remains above its signal line in positive territory. Both RSI and Slow stochastic are about to drop from their respective overbought zones. The ensuing dip can be used to add to existing holdings.

Bottomline? 1 yr daily bar chart patterns of S&P 500 and FTSE 100 indices are undergoing a bit of profit booking after touching new highs. The long-term bull markets are intact. Stay invested, or use the dips to add to previous holdings.

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