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Saturday, July 12, 2014

Stock Index Chart Patterns: CAC 40, DAX, RTS – Jul 11, ‘14

CAC 40 Index Chart (France)


The 6 months daily bar chart pattern of CAC 40 is undergoing its first serious correction since Mar ‘14. In last week’s analysis, negative divergences visible on the technical indicators and strong volumes on a down day had hinted at continued bear domination.

The selling came sharp and swift. The index hesitated briefly at the expected support level of 4350 before plunging below the 200 day EMA and the 4300 level. By the end of the week, a mild pullback took the index back up to its 200 day EMA.

The 20 day EMA has crossed below the 50 day EMA, and both EMAs are falling – indicating near term weakness. Technical indicators are bearish and looking oversold. MACD has dropped deep into its oversold zone. RSI has bounced up weakly from the edge of its oversold zone. Slow stochastic is trying to move up inside its oversold zone.

Is the correction over? Negative divergences, still visible on the technical indicators, are suggesting otherwise. All three indicators dropped to lower levels than their respective lows back in Feb and Mar ‘14, whereas the index has touched a higher bottom.

On longer term weekly chart (not shown), the index received support from its 50 week EMA and is trading above its 50 week and 200 week EMAs. The long-term bull market is intact. The correction is providing an adding opportunity.

DAX Index Chart (Germany)


The following warning note was sounded in last week’s analysis of the 6 months daily bar chart pattern of DAX, though the index had touched a new lifetime closing high of 10029: “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.”

By falling and closing below the Jun ‘14 low of 9750, the ‘double-top’ pattern, and a downward break from the ‘broadening top’ pattern have been confirmed. That means more downside is likely. The good news is that the stop-loss level of 9600 was not triggered, though the index dropped close to the 9600 level two days in a row.

Technical indicators are looking bearish. MACD is falling below its signal line in negative territory. RSI is below its 50% level. Slow stochastic has dropped inside its oversold zone.

On longer term weekly chart (not shown), the index is testing support from its 20 week EMA, and trading above its 50 week and 200 week EMAs in a long-term bull market. However, it has broken down below a bearish ‘broadening top’ pattern. Negative divergences are also visible on weekly technical indicators.

There is a possibility of the index falling to the zone between 9000-9250. Book some partial profits.

RTS Index Chart (Russia)


There is good news and bad news for bulls that are visible on the 6 months daily bar chart pattern of RTSI. First the good news. The rising 20 day EMA has supported the index well. The 50 day EMA has finally crossed above the 200 day EMA – though the ‘golden cross’ is not a convincing one yet.

Now, the bad news. By touching a slightly lower intra-day top of 1420 on Thu. Jul 10, and forming a ‘reversal day’ pattern (higher high, lower close), the possibility of a ‘double top’ reversal pattern has come to the fore. However, the pattern will get confirmed only if the index falls below the 1350 level.

Daily technical indicators are in bullish zones, but showing signs of weakness. MACD is sliding below its signal line inside overbought zone. Note that the signal line has formed a bearish ‘inverted saucer’ pattern. RSI and Slow stochastic are above their respective 50% levels, but slipping down.

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. Weekly technical indicators are in bullish zones.

Continue accumulation with a stop-loss at 1325. Add more if the index crosses 1425 convincingly.

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