Monday, December 9, 2013

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Dec 06, ‘13

S&P 500 Index Chart

$SPX - StockCharts-001-001

The following comments were made in last week’s analysis of the 6 months daily bar chart pattern of S&P 500: “The index continues to trade within the ‘wedge’ and looks ready for a steep correction. Volumes are sliding. Daily technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.”

A downward break from the bearish ‘falling wedge’ pattern occurred on the first day of the week. The index quickly dropped below its 20 day EMA, accompanied by strong volumes. By the end of the week however, better than expected economic news enthused bulls. The index pulled back to the lower edge of the wedge.

Such a pullback is quite common, and provides an opportunity to sell to those who may have missed out on selling during the downward break below the wedge. Note that the bounce on Fri. Dec 6 ‘13 regained the entire loss during the week, but volumes were lower than the previous three down days.

Daily technical indicators have corrected overbought conditions, but remain bullish. MACD is below its signal line in positive territory, but has stopped falling. RSI has bounced up from its 50% level. Slow stochastic has moved above its 50% level after a brief drop below it.

The index may move up to touch a new lifetime high; but one should respect a break down below a bearish pattern. Taking some profit off the table would be a smart move. Reassess the situation if the index continues to move up on good volumes. Excess liquidity can overwhelm technical signals in the short-term.

FTSE 100 Index 


Last week, technical indicators of the 6 months daily bar chart pattern of FTSE 100 were looking bearish. A drop below the 50 day EMA was on the cards. The index fell quickly below the 6500 level on strong volumes. The rising 200 day EMA provided good support, and the index closed well above the 6500 level by the end of the week.

Is the correction over? The index needs to climb above its 20 day and 50 day EMAs and the 6700 level with good volume support for bulls to assert full control. Till then, the down trend will remain in force. As long as the index continues to trade above its rising 200 day EMA, the long-term bull market will be intact.

Daily technical indicators are bearish, but showing some early signs of recovery. MACD is falling below its signal line in negative territory. RSI has bounced up a bit from the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone.

The intrepid may add with a strict stop-loss at 6400. The prudent should wait for the down trend to end.

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