Are you worried about the recent volatility in the Stock Market? Are you confused what to buy, sell or hold? The newsletter selects quality mid-caps and small-caps for investors with a long-term perspective and provides timely buy/sell/hold suggestions. Send an email (to address in profile below) for subscription details today.

Monday, August 10, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 07, 2015

S&P 500 Index Chart


For the past 6 months, the daily bar chart pattern of S&P 500 has been oscillating about its 20 day and 50 day EMAs within a 95 points rectangular range between 2040 and 2135 (marked by blue horizontal lines).

Barring a couple of trading days in Mar ‘15, red volume bars (down days) have been taller than green volume bars (up days) since Jan ‘15. That is usually a sign of ‘distribution’ from stronger to weaker hands.

This raises the possibility of an eventual downward break out from the rectangular pattern – though a break out from a ‘rectangle’ can occur in either direction. Remember that an upward break out from a range requires significant increase in volume support to technically validate the break out.

Otherwise, the upward break out may turn out to be a ‘false’ one. A downward break out does not require an increase in volumes for technical validation.

Daily technical indicators are looking bearish. MACD has crossed below its signal line and entered negative territory. RSI and Slow stochastic have dropped below their respective 50% levels.

The index is trading above its 200 day EMA in a bull market. However, the 200 day EMA is no longer rising. There is a good chance of the index dropping below its long-term moving average and testing support from the 2040 level (like it did last month).

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. The 20 week EMA appears to be forming a bearish ‘rounding top’ pattern – hinting at a strong correction if not a change of trend. Weekly technical indicators are turning bearish and showing downward momentum.

FTSE 100 Index Chart


The daily bar chart pattern of FTSE 100 has been consolidating sideways within a ‘symmetrical triangle’ pattern for the past 2 months. The index faced strong resistance from its sliding 200 day EMA and the upper edge of the triangle last week, but eked out a 22 points weekly gain.

A ‘symmetrical triangle’ is usually a continuation pattern. So, a downward break out from the ‘triangle’ is likely. But triangles are unreliable patterns. An upward break out can’t be ruled out either. A buy/sell action should be initiated only after the eventual break out.

Daily technical indicators are in bullish zones. MACD and Slow stochastic are rising, but RSI is looking a bit bearish by turning down.

On longer term weekly chart (not shown), the index is below its falling 20 week and 50 week EMAs but closed well above its 200 week EMA, and technically remains in a long-term bull market. Weekly technical indicators are in bearish zones.

No comments: