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Monday, February 23, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 20, 2015

S&P 500 Index Chart

SPX_Feb2015

The daily bar chart pattern of S&P 500 closed at a new lifetime high of 2110, after consolidating a bit near the 2100 level. All three EMAs are rising, and the index is trading well above them in a long-term bull market.

However, there are a couple of dark clouds on the horizon. Note that volumes have been sliding (marked by blue arrow) during the rally from the Feb 2 low of 1980. Rallies require volume support to sustain. (Look what happened to the rally with sliding volumes during Aug ‘14.)

Also, the entire trading during the past 6 months has occurred within a large ‘rising wedge’ pattern (redrawn to incorporate the upward bounce from the Feb 2 low), which has bearish implications.

Daily technical indicators continue to look overbought – though they can (and often do) remain overbought for long periods. MACD is rising strongly above its signal line inside overbought territory. RSI is moving up towards its overbought zone. Slow stochastic is well inside its overbought zone.

On longer term weekly chart (not shown), the index closed well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are looking bullish but overbought. Also, all three indicators are showing negative divergences by failing to touch new highs with the index. Bulls should hold off on celebrating for the time being.

FTSE 100 Index Chart

FTSE_Feb2315

The bullish ‘ascending triangle’ pattern within which the daily bar chart pattern of FTSE 100 was trading in the previous week, has been redrawn as a bearish ‘rising wedge’ pattern – even though the index touched a lifetime high of 6943 today.

The lack of a clear break out above the ‘triangle’ last week, followed by today’s test and retreat from the upper edge of the ‘wedge’ required the redrawing. While this redrawing may appear confusing to the uninitiated, it is sometimes necessary to take into account any change in trading sentiment.

All three daily technical indicators are in bullish zones, but showing downward momentum and negative divergences by failing to touch new highs with the index. The widening gap between the 20 day and 200 day EMAs is a sign of overbought condition.

On longer term weekly chart (not shown), the index is trading well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are in bullish zones, but MACD and Slow stochastic are looking overbought. Also, all three indicators are showing negative divergences by failing to touch new highs with the index. Await the break out from the ‘wedge’ pattern.

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