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Monday, February 10, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 07, ‘14

S&P 500 Index Chart

$SPX-001-001

The following cautionary comment was made in last week’s analysis of the daily bar chart pattern of S&P 500: “The index seems to be forming a bearish ‘flag’ pattern from which the likely break out is downwards.” A drop below the Dec ‘13 low of 1768 was expected to be followed by a test of the 200 day EMA.

Why? Because the downside target from the ‘flag’ was 1720 – which was close to the level of the 200 day EMA. As often happens during corrections, the downside target wasn’t met. The index fell sharply on strong volumes to an intra-day low of 1740 on Monday, and then touched 1738 on Wed. Feb 5.

Just when it looked like the 200 day EMA will get tested, bulls fought back spiritedly. The index recovered all the way towards the 1800 level, but faced resistance from the 50 day EMA. The index has retraced more than 50% of its fall from the Jan 15 top of 1851 to the Feb 5 low of 1738. The correction appears to be over. The long-term bull market is intact.

Daily technical indicators are recovering from oversold conditions, but remain in bearish zones. MACD is trying to emerge from its oversold zone, but remains below its falling signal line. RSI has bounced up strongly from the edge of its oversold zone, and is just below its 50% level. Slow stochastic has emerged from its oversold zone, but is well below its 50% level.

Bulls have a little more work to do before they can regain full control.

FTSE 100 Index Chart

FTSE_Feb0714

The daily bar chart pattern of FTSE 100 slipped to an intra-day low of 6417 (on Tue. Feb 4), which was lower than its previous low of 6422 touched on Dec 16 ‘13. Strong volumes raised concerns about further downside.

A combination of short covering and value buying led to a recovery of sorts. The index closed above its 200 day EMA by the end of the week, but faced resistance from its falling 20 day EMA.

The correction from the Jan 21 high of 6867 to the Feb 4 low of 6417 covered 450 points. The 50% Fibonacci retracement target is 6642. Friday’s intra-day high of 6596 means the correction is not yet over.

Daily technical indicators are recovering from oversold conditions, but look bearish. MACD is trying to emerge from its oversold zone, and remains below its falling signal line. RSI has come out of its oversold zone, but its upward momentum looks weak. Slow stochastic has just emerged from its oversold zone.

Expect some more correction/consolidation before bulls can regain control.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 indices are recovering from strong bear attacks, but facing technical resistances. Long-term bull markets are intact. The corrections should improve the technical ‘health’ of the charts and enable both indices to move higher. Add/re-enter on convincing moves above the respective 50 day EMAs.

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