Monday, December 16, 2013

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

S&P 500 Index Chart

S&P 500_Dec1313

In last week’s analysis of the 6 months daily bar chart pattern of S&P 500 index, the following concluding remark is worth repeating: “The index may move up to touch a new lifetime high; but one should respect a break down below a bearish pattern.”

The index moved up on Dec 9 ‘13 to test its lifetime Nov 29 ‘13 high of 1813 – fell short by just a point, and dropped below its 20 day EMA again – forming a small ‘double-top’ reversal pattern in the process. Has the index topped out finally?

Two back-to-back bearish patterns – first, a break down below a ‘rising wedge’ followed by a pullback; and then a breakdown from a ‘double top’ – have given ample warning to bulls to book profits.

However, volume confirmation for the ‘double-top’ is absent. Volumes during formation of both tops are about the same, instead of being lower for the second top. The small size of the ‘double-top’ may give bulls some hope of a shallow correction.

Daily technical indicators are looking bearish. MACD is still positive, but falling rapidly below its signal line. RSI has fallen below its 50% level. Slow stochastic has dropped sharply into its oversold zone.

Strong volumes on down-days suggest some more correction, and a drop below the 50 day EMA. A deeper correction may get support from the zone between 1710 and 1730. A convincing move above 1813 will restore bullish sentiments.

FTSE 100 Index Chart


In last week’s analysis of the 6 months daily bar chart pattern of FTSE 100 index, the following were the concluding remarks: “The intrepid may add with a strict stop-loss at 6400. The prudent should wait for the down trend to end.”

Note that the index dropped and closed below its 200 day EMA, but managed to stay above the 6400 level. At the time of writing this post, the index has risen smartly above its 200 day EMA and the 6500 level.

Daily technical indicators are looking bearish, and oversold. So, today’s upward bounce is not a surprise. MACD is falling below its signal line and about to enter its oversold zone. Both RSI and Slow stochastic are inside their respective oversold zones.

Enter with a stop-loss at 6400 – if you haven’t done so already.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are trying to thwart bear attacks. S&P 500 has corrected after forming an intermediate top. FTSE 100 is in the process of recovering from a 2 months long down trend. Both indices are in long-term bull markets. The corrections are providing opportunities to enter.

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