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Monday, January 20, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 17, ‘14

S&P 500 Index Chart

S&P 500_Jan1714

The 6 months daily bar chart pattern of S&P 500 had a sharp drop below its rising 20 day EMA on the first day of the week, only to bounce up and touch a new lifetime high midweek. Profit booking set in and the index closed slightly lower for the week on strong volumes.

Daily technical indicators are in bullish zones, but showing signs of weakness. MACD is positive, but below its falling signal line. RSI bounced up from its 50% level, but is falling back towards it. Slow stochastic re-entered its overbought zone, but its upward momentum has stalled.

What should concern bulls is the combined negative divergences visible in all three indicators, which failed to touch new highs with the index. The other concern is the formation of a bearish ‘broadening top’ pattern (lower low, higher high). The 100 point gap between the 50 day EMA and 200 day EMA is also suggesting that the index is ready for a serious correction.

Should investors worry about a collapse (like in 2007-08)? The short answer is: No. That doesn’t mean one should throw caution to the winds. The economy is showing gradual signs of improvement. Check the housing starts and manufacturing data. But the index appears to have run away a bit ahead of growth.

On longer-term weekly chart (not shown), the index looks way overbought. Take some profits off the table. Live to fight another day.

FTSE 100 Index Chart

FTSE_Jan1714

The 6 months daily bar chart pattern of FTSE 100 finally gathered the technical strength after two weeks of consolidation to cross and stay above the 6800 level. Friday’s strong volumes is an indication that bulls are in control.

Can a new 52 week high be reached soon? Daily technical indicators are bullish, but MACD and Slow stochastic are looking overbought, while RSI is showing negative divergence by falling. Expect the index to consolidate a bit, before attempting to cross its May ‘13 top.

The index is in a long-term bull market. Dips can be used to add.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, and moved up to touch new highs. S&P 500 is looking overbought, and may face a correction. FTSE 100 looks poised to move higher. Use dips to add, but maintain stop-losses.

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