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Saturday, July 5, 2014

Stock Index Chart Patterns: CAC 40, DAX, RTS – Jul 04, ‘14

CAC 40 Index Chart (France)


Last week’s analysis of the 6 months daily bar chart pattern of CAC 40 had the following comments: “The index dropped below its 20 day and 50 day EMAs into the support zone between 4420-4500. Despite an intra-day breach of 4420 on Thu. Jun 26, the support zone should prevent a deeper fall.”

On Mon. Jun 30, the index dropped to an intra-day low 4407 but closed the day just above the 4420 level. A brief rally took the index to an intra-day high of 4491 on Thu. Jul 3, but the resistance from the falling 20 day EMA proved too strong. The index closed the week at 4469 – below its 20 day and 50 day EMAs, but with a gain of 32 points.

Technically, the index spent the entire week within the support zone between 4420-4500 despite another intra-day breach of the 4420 level. But failure to rise above 4500 is not a bullish sign. Bulls may feel happy that the support zone prevented a deeper fall.

Daily technical indicators are suggesting that the happiness may be short-lived. All three indicators have recovered from their lows, but remain in bearish zones. All three are showing negative divergences by touching lower lows (than the ones touched in Apr ‘14) while the index touched a higher bottom.

During the week, volumes (not shown on chart) were the highest on Wed. Jul 2 – which was a down day. Bears are not ready yet to release their grip on the chart. In case 4420 gets breached convincingly on the down side, expect stronger support at 4350.

On longer term weekly chart (not shown), the index continues to receive support from its 20 week EMA. The bull market correction is providing an adding opportunity.

DAX Index Chart (Germany)


The 6 months daily bar chart pattern of DAX bounced up strongly after receiving support from its rising 50 day EMA, and cruised past the psychological 10000 level. On Thu. Jul 3, the index touched a slightly lower intra-day top of 10032, but closed at a lifetime high of 10029. A small correction on the last day of the week still kept the index above the 10000 level.

In last week’s analysis, technical indicators were looking bearish and a continuation of the correction was expected. Instead, the index defied gravity and closed at a new high. Just goes to show the fallibility of technical analysis (which is not a science despite the name).

Bearish signals visible at or near a market top should not be ignored. The bearish ‘broadening top’ pattern still exists. By failing to move above its recent intra-day top of 10051, the index is keeping the door open for the formation of a ‘double top’ reversal pattern.

Daily technical indicators have turned bullish. MACD is about to cross above its falling signal line in positive zone. RSI has moved above its 50% level. Slow stochastic has almost reached the edge of its overbought zone.

On longer term weekly chart (not shown), the index is trading above all three weekly EMAs in a long-term bull market. However, it is consolidating in a range within 9750-10050 and forming a bearish ‘broadening top’ pattern in the process.

No need to sell yet. Stay invested with a stop-loss at 9600. Book part profits if you are a conservative investor.

RTS Index Chart (Russia)


Last week’s analysis of the 6 months daily bar chart pattern of RTSI had the following comments: “Technical indicators are correcting overbought conditions, but remain in bullish zones. However, all three continue to show negative divergences by failing to touch new highs with the index. A correction may be just around the corner.”

A correction has started, though the 20 day EMA has prevented a steep fall so far. The 50 day EMA is ready to cross above the 200 day EMA – the ‘golden cross’ technically confirms a return to a bull market. However, it needs to be a convincing cross – for which the index needs to hold its current level or move higher.

That may be easier said than done. Daily technical indicators are still in bullish zones. But all three are in down trends and may slip into bearish zones soon.

On longer term weekly chart (not shown). the index is trading above its 20 week and 50 week EMAs but below its 200 week EMA in a long-term bear market.

Accumulate with a stop-loss at 1300. Add more if the index crosses 1425 convincingly.

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