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Monday, October 19, 2015

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Oct 16, 2015

S&P 500 Index Chart


The daily bar chart pattern of S&P 500 appears to have formed a ‘double bottom’ reversal pattern. A smart rally followed, and has taken the index to a close above its three EMAs in bull territory after nearly 2 months.

Is the brief foray into bear territory over? That may be a little early to call. Why? Because a condition for technical validity of a ‘double bottom’ pattern is a sharp increase in volumes to support the rally following the formation of the second bottom.

Though volumes were strong, they seem to be tapering down. Also, the down trend from the Jul 20 ‘15 top (marked by blue down trend line) has not been reversed yet. Bears can be expected to fight back at any time.

Daily technical indicators are in bullish zones, but MACD and Slow stochastic are looking overbought. MACD is showing positive divergence by touching a 6 months high. Slow stochastic is showing negative divergence by failing to touch a new high with the index.

Expect some consolidation or correction before the index decides on its next move. Odds may be favouring an up move.

On longer term weekly chart (not shown), the index closed just above its 20 week and 50 week EMAs and is trading well above its rising 200 week EMA in a long-term bull market. Weekly technical indicators are in bearish/neutral zones, but showing good upward momentum.

FTSE 100 Index Chart


The daily bar chart pattern of FTSE 100 broke out upwards from a ‘rectangle’ pattern within which it was trading since end-Aug ‘15.

The breakout was supported by an increase in volumes (not shown on chart) that provided technical validity to the breakout. As often happens, the index subsequently pulled back towards the top of the ‘rectangle’ before resuming its rally.

So, is this a good buying opportunity? The answer is: Not yet. Why? Because the index continues to trade below its falling 200 day EMA in a bear market. The strategy to follow in a bear market is to ‘sell on rallies’.

Daily technical indicators are in bullish zones, but MACD and Slow stochastic are looking overbought. Some more upside is possible, but expect the 200 day EMA to provide strong resistance.

On longer term weekly chart (not shown), the index managed to close above its 200 week EMA for a week, but slipped down below all its three weekly EMAs after facing resistance from its falling 20 week EMA. Weekly MACD and RSI are in bearish zones, but Slow stochastic has moved above its 50% level.

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