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Monday, January 25, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jan 22, 2016

S&P 500 index chart



The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "...the fall has been a bit too steep. Daily technical indicators are looking bearish and oversold, which can lead to a technical bounce."

On Wed. Jan 20 '16, the index dropped even lower with high volumes to touch a new 52 week low of 1812 - confirming a bearish pattern of 'lower tops and lower bottoms' since Jul '15.

However, Wednesday's price action formed a 'hammer' pattern (in candlestick parlance) that has bullish implications when formed at the end of a down move. The index bounced up sharply to end the week with a gain of nearly 1.5%.

Is the correction over? Or, was it just a 'dead cat bounce'? It may be a bit early to call. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bulls to make an effort to turn the technical bounce into a proper rally. But the scale is tilted towards bears despite the 95 points recovery from the mid-week low.

The drop to 1812 last week corrected 15% from the May '15 top of 2135. So, an important condition of a bear market, viz. a 20% correction from the top, has not been met yet - though the 'death cross' of the 50 day EMA below the 200 day EMA earlier in the month confirmed an impending bear phase.

On longer term weekly chart (not shown), the index bounced up strongly after receiving support from its rising 200 week EMA, and formed a bullish 'hammer' candlestick pattern. The long-term bull market is still intact. Weekly technical indicators are in bearish zones.

FTSE 100 index chart



The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Daily technical indicators are again looking oversold. That doesn't mean that the index won't fall lower."

The index dropped to a new 52 week (and 3 year) low of 5640 on Wed. Jan 20 '16 with strong volumes, but bounced up sharply to close exactly at 5900 - gaining more than 1.6% on a weekly closing basis.

FTSE continues to trade below its three falling EMAs in a bear market. By falling to 5640, the index corrected more than 20% from its Apr '15 top of 7123 - further confirming a bear market.

The 20 day EMA is providing the immediate overhead resistance. Daily technical indicators are recovering from oversold conditions, but remain in bearish zones.

Expect bears to pounce if the technical bounce from oversold conditions tries to turn into another bear market rally.

On longer term weekly chart (not shown), the index closed well below its three weekly EMAs in a bear market, but has formed a bullish 'hammer' candlestick pattern. The imminent 'death cross' of the 50 week EMA below the 200 week EMA will technically confirm a long-term bear market. Weekly technical indicators are in bearish zones.

1 comment:

Subhankar said...

Greg Guenthner of The Daily Reckoning explains why the Wed. Jan 20 '16 low of the S&P 500 index was not the bottom:

http://dailyreckoning.com/no-that-wasnt-the-bottom/