Monday, April 7, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Apr 04, ‘14

S&P 500 Index Chart


The daily bar chart pattern of S&P 500 broke out above the rectangular range within which it was trading since the beginning of Mar ‘14 – but it turned out to be a joke on All Fool’s Day. There was no accompanying surge in volumes to validate the upward break out.

The index managed to move up to touch a new intra-day high of 1897 on Apr 4 ‘14, but formed a ‘reversal day’ pattern (higher high, lower close) and plunged back inside the rectangle. At the time of writing this post, the index is trading below its 20 day EMA.

Daily technical indicators are still in bullish zones, but beginning to look bearish. MACD has crossed below its signal line in positive territory. RSI is resting at its 50% level. Slow stochastic is falling towards its 50% level. Note that all three indicators showed negative divergences by failing touch new highs with the index.

Maintain a stop-loss at 1840 to protect profits. A drop below 1840 would confirm an intermediate top at 1897. A deeper correction may follow. The index is trading well above its rising 200 day EMA – so the long-term bull market is intact.

FTSE 100 Index Chart


The following comments were made in last week’s analysis of the daily bar chart pattern of FTSE 100: “The index is consolidating within a rectangular band between 6500 and 6630. Rectangles tend to be continuation patterns but are unreliable. That means a downward break below 6500 is likely. However, waiting for the eventual break out would be prudent. Stay invested with a stop-loss at 6500.”

The index rally from the recent bottom formed at 6500 continued past its 20 day and 50 day EMAs into bull territory – closing just below the 6700 level by the end of the week. However, at the time of writing this post, the index has corrected down to the 6620 level – back inside the rectangle. The bears are refusing to give up without a fight.

Daily technical indicators are looking bullish. MACD is rising above its signal line in negative territory. RSI has moved above its 50% level. Slow stochastic has entered its overbought zone, but showing signs of turning down.

Stay invested with a stop-loss at 6500.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 broke out above ‘rectangle’ patterns within which they were consolidating. But the break outs turned out to be ‘false’. Both indices are trading within their respective rectangles again. Deeper corrections can not be ruled out. Stay invested with suitable stop-losses.

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