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Monday, November 3, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 31, ‘14

S&P 500 Index Chart

S&P 500_Oct3114

The 6 months daily bar chart pattern of S&P 500 started the week by dropping to its 50 day EMA intra-day, but resumed its up trend by forming a bullish pattern of higher tops and higher bottoms for the rest of the week.

On Fri. Oct 31 ‘14, the index rose to test its previous (Sep 19) top on good volume support, and closed the week at a new lifetime high of 2018. Bulls are back in control, and bears should start preparing for hibernation – right?

Yes – except for some dark clouds on the horizon that may rain on the bull party. By failing to cross above its previous top, the index has left the door open for a bearish ‘double top’ reversal pattern – though the pattern will be confirmed only if the index falls below its Oct 15 low of 1821.

More worrisome is the large ‘broadening top’ reversal pattern that appears to be forming since the index touched its Jul 24 top of 1991. Note that a smaller ‘broadening top’ pattern - formed in early Sep ‘14 - had preceded the sharp correction in Oct ‘14.

Daily technical indicators are in bullish zones, and beginning to look overbought. MACD and RSI are just below their respective overbought zones. Slow stochastic is well inside its overbought zone. The sharp ‘V’ shaped rally from the Oct 15 low may not sustain.

On longer term weekly chart (not shown), the index stayed above all three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones but looking a bit overbought. The index may be forming a bearish ‘broadening top’ pattern that will be negated only if the previous top of 2020 is crossed convincingly.

FTSE 100 Index Chart


After facing resistance during the first 2 days of the trading week, the daily bar chart pattern of FTSE 100 crossed above its 20 day EMA and rose above the 6500 level to its 50 day EMA by the end of the week.

Despite a weekly gain of 150 odd points, the failure of the index to move above its 50 day EMA may encourage bears to get active again. (At the time of writing this post, FTSE has slipped down towards the 6500 level.)

Daily technical indicators are looking bullish. MACD is still negative, but has emerged from its oversold zone and is rising above its signal line. RSI has moved above its 50% level. Slow stochastic has climbed to the edge of its overbought zone.

Note that the MACD signal line and Slow stochastic %D line have both formed bullish ‘rounding bottom’ patterns. Bulls are trying extricate themselves from a strong bear grip – but still have a lot of work to do.

On longer term weekly chart (not shown), the index has moved well above its 200 week EMA but remains below its falling 20 week and 50 week EMAs. Weekly technical indicators have corrected oversold conditions but remain in bearish zones. The long-term bull market appears to have survived a strong bear attack.

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