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Monday, August 24, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 21, 2015

S&P 500 Index Chart

S&P 500_Aug2115

The following comments were made in last week’s post on the daily bar chart pattern of S&P 500: “Strong volumes on recent down-days is a sign of ‘distribution’. That increases the probability of a downward break out below the ‘rectangle’.” 

So, it should not have come as a surprise to readers of this blog when the downward breakout below the 2040 level (lower edge of the ‘rectangle’ drawn on last week’s chart) occurred on Thu. Aug 20. That was followed by a steep fall to a 10 months low of 1971 on Fri. Aug 21.

The index has closed well below its three EMAs in bear territory, and corrected 7.5% from its Jul ‘15 top of 2133. Can it correct some more? The short answer is: Yes. However, the sharp volume spike on Friday may be the sign of a ‘selling climax’.

All three daily technical indicators are looking oversold. Also, Slow stochastic is showing positive divergence by not touching a new low with the index. That raises the possibility of a technical bounce from current levels.

Will the likely bounce be a buying opportunity? Not really. The downward index target for the breakout below the ‘rectangle’ is 1945 (height of the ‘rectangle’ deducted from the breakdown level of 2040). So, any technical bounce may induce more bear selling.

On longer term weekly chart (not shown), the index dropped well below its 20 week and 50 week EMAs but closed above its rising 200 week EMA in a long-term bull market. The 20 week and 50 week EMAs have started moving down. Weekly technical indicators are in bearish zones and showing downward momentum.

FTSE 100 Index Chart

FTSE_Aug2115 

The daily bar chart pattern of FTSE 100, had dropped to the lower edge of the ‘symmetrical triangle’ pattern within which it was consolidating for the past 2 months. That led to the following remarks in last week’s post:

“The index closed exactly on the lower edge of the triangle – temporarily preventing a downward break out. Why ‘temporarily’? Because strong downward momentum visible on the three technical indicators is suggesting a downward break out and a test of the Jan ‘15 low of 6300.”

The index dropped to close at 6188 – its lowest level in more than 8 months. All three EMAs are falling and the index has closed well below them in a bear market. More downside is likely.

Daily technical indicators are in their oversold zones. However, MACD is showing positive divergence by not touching a new low with the index. A technical bounce is a possibility – but bears are likely to use it for selling.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs and has probably entered a long-term bear market. Weekly technical indicators are looking oversold and showing downward momentum.

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