Monday, June 16, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 13, ‘14

S&P 500 Index Chart

S&P 500_Jun1314

In last week’s analysis of the 6 months daily bar chart pattern of S&P 500, the following comments gave adequate warning to investors: “Technical indicators have been ‘flashing red’ for a while, with all three inside their overbought zones. Volumes have been moderate and sliding. The index is trading more than 40 points above its 20 day EMA. The vertical distance between the 50 day and 200 day EMAs is increasing. All of the above point to an overbought market that is ripe for a correction.”

The index rose to touch a new high of 1955 on Jun 9, but corrected down to 1925 over the next three days before bouncing up a bit on Jun 13. Though the index lost only 13 points on a weekly closing basis, on the weekly chart (not shown) a ‘key reversal bar’ (higher high, lower close) has formed.

Weekly volumes were strong but not significantly higher. That means the correction may not be very deep. There is good support in the zone between 1850-1900.

Technical indicators have corrected from overbought zones, but remain bullish. MACD has dropped to touch its signal line near the lower edge of its overbought zone. RSI and Slow stochastic have fallen sharply from their overbought zones, but remain above their respective 50% levels.

The turmoil in Iraq was just an excuse for some profit booking. The ongoing correction should improve the technical ‘health’ of the long-term bull market, and is providing an opportunity to add.

FTSE 100 Index Chart


The 6 months daily bar chart pattern of FTSE 100 was consolidating sideways within a ‘symmetrical triangle’ pattern after touching a high of 6895 on May 15. Last week’s comments about the triangle pattern may be worth repeating: “Triangles tend to be continuation patterns, so the eventual break out should be upwards. However, triangles are unreliable. So, it is better to wait for the eventual break out before taking a buy/sell decision.”

The index continued its consolidation within the triangle from Monday through Thursday, but broke down sharply below the triangle and the 50 day EMA on Fri. Jun 13. Will the index correct some more?

Technical indicators are turning bearish. MACD is falling below its signal line in positive territory. Both RSI and Slow stochastic have slipped below their 50% levels into bearish zones.

The index is trading well above its rising 200 day EMA – so , the long-term bull market is under no immediate threat. The correction is providing an adding opportunity.

Bottomline? Daily bar chart patterns of S&P 500 and FTSE 100 are undergoing corrections in long-term bull markets after touching new highs. Stay invested or use the dips to buy.

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