Monday, July 21, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 18, ‘14

S&P 500 Index Chart


The 6 months daily bar chart pattern of S&P 500 has been consolidating sideways within a symmetrical triangle pattern since touching a lifetime high of 1985 on Jul 3 ‘14. Triangles tend to be continuation patterns, so the eventual price break out should be upwards.

However, triangles are also unreliable. Price can break downwards or continue to move sideways and break out through the apex of the triangle. That means, one needs to wait for the eventual break out before initiating any buy/sell decision.

Note that volumes during the week were highest on an up-day (Wed. Jul 16), but were equally strong on a down-day (Thu. Jul 17). Bulls and bears appear to be evenly matched. What about the technical indicators?

All three are in bullish zones, but have formed bearish patterns of lower tops and lower bottoms. Interestingly, MACD and RSI are showing negative divergences by touching lower bottoms on Thu. Jul 17, while the index touched a slightly higher bottom.

On longer term weekly chart (not shown), all three weekly EMAs are rising and the index is trading well above them. That is the sign of a long-term bull market. Falling volumes since the beginning of the year is a concern. Weekly technical indicators are overbought. A sharp correction can occur at any time.

FTSE 100 Index Chart


The 6 months daily bar chart pattern of FTSE 100 has good news and bad news for bulls. First, the good. The index spent the entire week above its 200 day EMA. On Fri. Jul 18 ‘14, the index dropped to test support from its 200 day EMA, but bounced up to close almost on the 6750 level, with a 60 points gain for the week.

Now, the bad. The index managed to cross and close above its falling 20 day and 50 day EMAs on Wed. Jul 16 ‘14, but could not sustain in bull territory and dropped below its 20 day and 50 day EMAs. By touching a lower top just short of the 6800 level, the 2 months long down trend continues.

Technical indicators are in bearish zones. MACD is touching its signal line in negative territory, and moving sideways. RSI is trying to cross above its 50% level. Slow stochastic is rising towards its 50% level. The index needs to move convincingly above its Jul ‘14 top of 6875 to break the bearish pattern of ‘lower tops and lower bottoms’.

On longer term weekly chart (not shown), the index is trading above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing downward momentum. Expect bears to dominate in the near term.

Bottomline? The daily bar chart patterns of S&P 500 and FTSE 100 indices are in long-term bull markets, but facing technical headwinds. S&P 500 is consolidating sideways within a triangle pattern. FTSE 100 is in a 2 months long down trend. Deeper corrections may occur at any time. Stay invested, but maintain stop-losses.

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