Monday, December 22, 2014

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

S&P 500 Index Chart


The daily bar chart pattern of S&P 500 index dropped briefly below 1975, but suddenly turned around and recovered almost all its losses from its Dec 5 top in just three trading sessions. US Fed’s decision not to raise interest rates in the near future provided just the impetus the bulls needed.

All three EMAs are rising and the index is trading above them. The bulls are back in control after a sharp correction. Or, are they? Note that the index is still within the ‘broadening top’ pattern, and needs to overcome the resistance of the upward-sloping blue line of the pattern for the bull market to continue.

An increase in volatility – as witnessed during the formation of the ‘broadening top’ pattern – is a sign of nervousness among investors. Does that mean a change of trend is in the offing? One needs to wait for technical confirmation – but the formation of a bearish reversal pattern should be respected.

Daily technical indicators are back in bullish zones. A continuation of the rally is likely.

On longer term weekly chart (not shown), the index is trading above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones.

FTSE 100 Index Chart


The daily bar chart pattern of FTSE 100 dropped to an intra-day low of 6145 on Dec 16 ‘14, but bounced up strongly on the next three days to move above the 6550 level – where it faced resistance from its falling 50 day EMA.

On Oct 16 ‘14, the index had touched an intra-day low of 6073. By touching a slightly higher bottom on Dec 16 ‘14, the index appears to have formed a ‘double bottom’ reversal pattern. However, volumes were higher when the index touched its Oct 16 low.

Also, on a closing basis, the Oct ‘14 low was 6196 whereas the Dec ‘14 low was 6183. That means a bearish pattern of ‘lower tops and lower bottoms’ has been formed.

Technical indicators have corrected oversold conditions, but remain in bearish zones.

On longer term weekly chart (not shown), the index dropped below its 200 week EMA, but managed to close well above it. However, the index is trading below its 20 week and 50 week EMAs. Weekly technical indicators are looking bearish. Bears may mount another attack.

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