Monday, February 3, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 31, ‘14

S&P 500 Index Chart

S&P 500_Jan3114

After the steep fall below its 20 day and 50 day EMAs in the previous week, the 6 months daily bar chart pattern of S&P 500 consolidated sideways between 1770 and 1800. The index seems to be forming a bearish ‘flag’ pattern from which the likely break out is downwards.

Daily technical indicators are bearish and beginning to look a bit oversold. MACD is falling below its signal line in negative territory. RSI is below its 50% level. Slow stochastic is inside its oversold zone. Higher volumes on down days are an indication that bears are dominating.

Continued tapering of QE3 and a growth slowdown in emerging markets seem to have spooked bulls, and a long overdue correction has set in. A drop below the Dec ‘13 low of 1768 may lead to a test of the rising 200 day EMA for the first time since Nov ‘12.

Q4 GDP growth at 3.2% was higher than expected, but lower than the Q3 number. Housing market is still weak, with new and existing home sales dipping. Initial claims of unemployment rose more than expected and nearly touched the 350K mark. Growth hiccups continue.

FTSE 100 Index Chart


Previous week’s sharp correction on the 6 months daily bar chart pattern of FTSE 100 continued last week. The index breached its 200 day EMA and closed below it for the week. The good news for the bulls is that the Dec ‘13 low of 6422 was not breached, and the index recovered most of its losses on Friday.

Daily technical indicators are bearish but looking oversold. MACD has dropped sharply below its signal line into oversold zone. RSI is at the edge of its oversold zone. Slow stochastic is trying to emerge from its oversold zone. At the time of writing this post, the index is trying to move above its 200 day EMA.

The UK's services and manufacturing sectors were the drivers of 0.7% growth in the fourth quarter, taking the annual growth rate to 1.9%, the strongest since 2007 before the financial crisis took hold.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are facing strong corrections. Long-term bull markets are intact. The dips are adding opportunities. But waiting for the corrections to play out may be prudent.

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