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Monday, December 15, 2014

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

S&P 500 Index Chart


The following concluding remark was made in last week’s analysis of the daily bar chart pattern of S&P 500: “Caution is advised - the ‘broadening top’ can lead to a sharp correction.” Readers were also cautioned in two previous posts about the possibility of a sharp correction.

The ‘broadening top’ pattern formation started from Aug ‘14. The pattern got confirmed in Oct ‘14 when the index dropped to a lower bottom, but a 260 points rally touched a new lifetime high. Reversal patterns should always be respected – more so if they appear at lifetime highs.

Has the bull market ended? A reversal pattern that took more than 4 months to form is hinting at the possibility. However, a technical confirmation requires the index to fall below its Oct ‘14 low of 1820, and the 50 day EMA to cross below the 200 day EMA.

Daily technical indicators are looking bearish. MACD is still in positive zone, but is falling sharply below its signal line. RSI has dropped below its 50% level. Slow stochastic is inside its oversold zone. Strong volumes on down-days indicate that bears are not done yet.

On longer term weekly chart (not shown), the index dropped to its 20 week EMA on 2-months high volumes, but is trading well above its 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but showing strong downward momentum. More correction is likely.

FTSE 100 Index Chart


Bearish reversal patterns visible on MACD and Slow stochastic in last week’s analysis of the daily bar chart pattern of FTSE 100 led to the following warning: “The index may not be able to stay above its 200 day EMA much longer.”

However, the severity of the fall of 440 points (6.5%) during the week was a bit of a surprise. The index is trading well below its three EMAs in bear territory. Note that the ‘golden cross’ of the 50 day EMA above the 200 day EMA that confirms a return to a bull market failed to materialise.

A fall below the Oct ‘14 low of 6073 will form a bearish pattern of ‘lower tops and lower bottoms’. That hasn’t happened yet.

Daily technical indicators are looking a bit oversold. MACD is below its signal line and falling deeper into negative territory. RSI and Slow stochastic have entered their respective oversold zones. An upward bounce may follow, which bears may avail as a selling opportunity.

On longer term weekly chart (not shown), the index collapsed below its entangled 20 week and 50 week EMAs, but managed to close above its 200 week EMA. Weekly technical indicators are looking bearish, and showing strong downward momentum. A strong bear attack is threatening the long-term bull market.

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