Sunday, December 22, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 20, ‘13

S&P 500 Index Chart

S&P 500_Dec2013

The 6 months daily bar chart pattern of S&P 500 shows that bulls are back in control. The index had dropped to its 50 day EMA - where it received good support and bounced up strongly. Better than expected Q3 GDP number helped bullish sentiments.

Announcement of tapering of QE3 bond buying from Jan ‘14 was taken in stride by the bulls, as the Fed kept interest rates low. The index jumped to a new lifetime high on huge volumes by the end of the week.

Daily technical indicators have turned bullish. MACD has just crossed above its falling signal line in positive territory. RSI is moving up towards its overbought zone. Slow stochastic has risen sharply to enter its overbought zone. Looks like bears are out for the count – or, are they?

There are a few worrying signs for bulls. The index is trading almost 150 points above its 200 day EMA. Such a condition is often followed by a correction. The index formed two back-to-back bearish patterns (mentioned here), which led to two minor corrections. Now it has formed another bearish pattern called a ‘broadening top’ (higher tops, lower bottoms).

Not to forget the negative divergences visible in all three technical indicators, which failed to touch new highs with the index. When it comes to invested capital, it is better to be safe than sorry. The time may be ripe for partial profit booking.

FTSE 100 Index Chart


Ever since touching its Oct 30 ‘13 top of 6820, the 6 months daily bar chart pattern of FTSE 100 has been in a down trend (marked by blue down trend line). However, after testing and briefly dropping below its 200 day EMA, the index has made a strong come-back.

Note that the index made a small bullish inverse head-and-shoulders pattern and not only moved above all three EMAs on Fri. Dec 20 ‘13, but also above the down trend line. Friday’s volumes (not shown on chart) were significantly higher, and the highest in 3 months. That provides technical validity to the break out above the down trend line.

Daily technical indicators have turned bullish. MACD is negative, but has crossed above its signal line after forming a small ‘rounding bottom’ bullish pattern. RSI and Slow stochastic have climbed above their respective 50% levels after both formed ‘double-bottom’ reversal patterns.

If you didn’t get the opportunity to enter earlier, you can do so now. Or, wait for a likely pullback towards the down trend line to enter.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets. S&P 500 is facing some technical headwinds. Part profit booking may be a prudent step. FTSE 100 has broken out of a 2 months long down trend. The correction provided good opportunities to enter.

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