Monday, October 27, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 24, ‘14

S&P 500 Index Chart

S&P 500_Oct2414

The following comments appeared in last week’s analysis of the daily bar chart pattern of S&P 500: “The sharp volume spurt during Wednesday’s low may be the sign of a ‘selling climax’ that has bearish implications if the index fails to regain at least 50% of its fall from the Sep ‘14 top of 2020 to 1820. That means, the index needs to rise above 1920 quickly to prevent bears from getting complete control.”

It was also mentioned that the long-term bull market was intact, as the index was trading well above its 200 week EMA. Note that the index quickly crossed above its 200 day and 20 day EMAs – and rose above the 1920 level in the process.

After facing a day’s resistance from the 50 day EMA, the index bounced up from the support received from its 20 day EMA, and closed the week above all three EMAs in bull territory. So, have bears been vanquished?

Not just yet. Look at the volume bars, which have been sliding during the sharp bounce from the recent low of 1820. That may be a signal of short covering instead of renewed buying. Bears are probably lurking round the corner. (At the time of writing this post, the index is slipping down towards its 50 day EMA.)

Technical indicators have turned bullish. MACD is still negative, but has crossed sharply above its signal line (which has formed a small bullish ‘rounding bottom’ pattern). RSI has moved above its 50% level after brief hesitation. Slow stochastic has entered its overbought zone.

On longer term weekly chart (not shown), the index closed above all three weekly EMAs. Weekly technical indicators are back in bullish zones. However, the index may be forming a bearish ‘broadening top’ pattern that will be negated only if the previous top of 2020 can be crossed quickly. (This month’s sharp correction was triggered by a ‘broadening top’ pattern that formed on the daily chart.) Caution is advised till 2020 is convincingly crossed.

FTSE 100 Index Chart


Last week, daily technical indicators were trying to correct oversold conditions. That led to a rally on the daily bar chart pattern of FTSE 100 that briefly crossed above the 6400 level, but faced strong resistance from the falling 20 day EMA. The index gained 78 points for the week, but failed to close above the 6400 level.

Daily technical indicators corrected oversold conditions, but their upward momentum is slowing. MACD has crossed above its signal line in negative territory. RSI faced resistance from its 50% level, and slipped down. Slow stochastic has just moved above its 50% level.

At the time of writing this post, the index is trading below the 6350 level in bear territory.

On longer term weekly chart (not shown), the index managed to stay above its 200 week EMA during the week. But the 20 week EMA is about to cross below the 50 week EMA for the first time in more than 2 years, and both EMAs are moving down. Weekly technical indicators are trying to correct oversold conditions. The long-term bull market is under serious threat of being reversed.

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