Monday, May 26, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – May 23, ‘14

S&P 500 Index Chart

S&P 500_May2314

The 6 months daily bar chart pattern of S&P 500 crossed the 1900 level intra-day for the second time in its history and closed at a new lifetime high of 1900. That is the good news for bulls. The bad news is that the index failed to cross above its May 13 top. Unless it can do so convincingly and soon, the bears may pounce on the opportunity to sell.

Volumes are sliding, which is not conducive for sustenance of the up move. Also, the danger of a bearish ‘double-top’ formation is looming on the chart. The ‘double-top’ will get confirmed if the May 15 low of 1862 is breached – in which case the index may test its Apr ‘14 low.

Daily technical indicators are in bullish zones. MACD has crossed above its signal line in positive territory. RSI is rising above its 50% level. Slow stochastic has reached the edge of its overbought zone. However, all three indicators are showing negative divergences by failing to touch new highs.

All three EMAs are rising and the index is trading above them. The long-term bull market is under no threat. But be prepared for a meaningful correction that will restore the technical ‘health’ of the chart. Stay invested but maintain a stop-loss.

FTSE 100 Index Chart


Overbought technical indicators and a ‘reversal day’ pattern formed on May 15 led to the following comment in last week’s analysis of the 6 months daily bar chart pattern of FTSE 100: “Some correction/consolidation can be expected after an index touches new highs.”

The index corrected below the 6800 level during the week, but found good support from its 20 day EMA. The index managed to close the week above the 6800 level and its three EMAs. However, bulls need to stay on guard.

Daily technical indicators are beginning to look bearish. MACD is positive, but has started falling below its signal line. RSI is about to drop below its 50% level. Slow stochastic is falling rapidly towards its 50% level. The correction may not be over yet.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are in long-term bull markets. S&P 500 is hesitating near its lifetime high. FTSE 100 is correcting a bit after touching a new lifetime high. Some caution is warranted near new highs. Stay invested with suitable stop-losses.

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