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Monday, September 22, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Sep 19, ‘14

S&P 500 Index Chart

S&P 500_Sep1914

The following comments appeared in last week’s analysis of the 6 months daily bar chart pattern of S&P 500: “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.”

Bearish technical signals at or near market tops should be respected, particularly when a bull market has been progressing for a long time. Note that the index received support from the 1980 level, and bounced up to touch a new lifetime high of 2019 on Fri. Sep 19 ‘14. But it again formed a ‘reversal day’ pattern (higher high, lower close) backed by a sharp increase in volumes.

All three technical indicators are in bullish zones but touched lower tops while the index touched a new high – the combined negative divergences have led to another correction that has received support from the 20 day EMA at the time of writing this post.

If the index drops below its recent low of 1980, a bearish ‘broadening top’ pattern will get formed – in which case, a possible test of the Aug ‘14 low of 1905 will be on the cards.

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

FTSE 100 Index Chart

FTSE_Sep1914

Downward momentum visible on the technical indicators in last week’s analysis of the 6 months daily bar chart pattern of FTSE 100 index had led to an expectation of some more correction or consolidation.

The index dropped sharply below its 50 day EMA on Tue. Sep 16 ‘14, but received good support from the 6750 level. By the end of the week, the index spurted above 6850 on a huge volume increase but closed at 6834 with a modest 30 points gain for the week.

The index is trading above all three EMAs in a long-term bull market and looks poised to touch new highs. Daily technical indicators are beginning to look bullish after correcting overbought conditions. MACD is rising towards its falling signal line in positive zone. RSI has moved above its 50% level. Slow stochastic is climbing up towards its 50% level.

On longer term weekly chart (not shown), the index again 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.

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