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Monday, September 15, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 12, ‘14

S&P 500 Index Chart

S&P 500_Sep1214

In a post 3 weeks ago, the 6 months daily bar chart pattern of S&P 500 had touched new lifetime intra-day (1995) and closing (1992) highs, but several bearish technical signals had led to the following concluding remark: “Booking part profits may be a good idea.”

The index continued to rally, and rose to touch a new lifetime intra-day high of 2011 on Sep 4 ‘14, but formed a ‘reversal day’ pattern that marked an intermediate top. The subsequent correction has dropped the index below its 20 day EMA to 1985 – marginally lower than the level of 1988 (closing on Aug 22) at which part-profit booking was suggested.

This is an example of why it is difficult to catch exact market tops or bottoms, but technical signals often provide advance warning of an impending change of trend. It is possible that the index may soon resume its rally. However, the ‘rounding top’ pattern formed on the index (also clearly visible on the MACD signal line) is hinting at a continuation of the correction in the near term.

Daily technical indicators have turned bearish. MACD has crossed below its signal line in positive zone, and its downward momentum is increasing. RSI is about to drop below its 50% level. Slow stochastic has already fallen below its 50% level. All three indicators showed negative divergences by failing to touch new highs with the index.

On longer term weekly chart (not shown), the index is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but showed negative divergences by failing to touch new highs with the index. Sliding volumes and higher volumes on down weeks are concerns for bulls.

FTSE 100 Index Chart

FTSE_Sep1214

The following comments were made 3 weeks ago in a post about the 6 months daily bar chart pattern of FTSE 100: “The index appears to be forming a bullish ‘flag’ pattern. A likely upward break out from the ‘flag’ may take the index to a new high.”

As if on cue, the index broke out upwards and after another brief sideways consolidation rose to touch a new high of 6905 on Sep 4 ‘14 – crossing above the May 15 ‘14 high of 6895 and finally breaking out of the bearish pattern of lower tops and lower bottoms.

As often happens after a new high is touched, profit booking started and pushed the index below the 6800 level – where it received good support from its 50 day EMA. The index is trading above its three EMAs in a long-term bull market.

Daily technical indicators are in bullish zones but showing downward momentum. MACD has crossed below its signal line in positive territory. RSI is just above its 50% level. Slow stochastic is resting on its 50% level. Some more correction or consolidation is likely.

On longer term weekly chart (not shown), the index received support from its 20 week EMA, and is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with the index.

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