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Monday, February 22, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 19, 2016

S&P 500 index chart

Please note the following remarks from last week's post: "If S&P 500 continues to rally with good volume support and crosses above its Feb 1 top of 1947, a 'double bottom' reversal pattern will get technically confirmed."

The index rallied smartly above its 20 day EMA, but touched a lower top of 1931 on Feb 17 '16. By failing to cross above 1947 - the peak between the two bottoms touched on Jan 20 and Feb 11 - the index could not fulfill the first technical condition for a 'double bottom' reversal pattern. 

Also, volumes during the formation of the Feb 11 bottom (at 1810) were lower than the volumes during formation of the Jan 20 bottom (at 1812). The second technical condition for a 'double bottom' requires volumes to increase after formation of the second bottom.

In other words, what had looked like a bullish 'double bottom' reversal pattern is turning out to be a sideways consolidation with a downward bias. 

If the index manages to rally some more with good volume support, the 'double bottom' can get technically confirmed after all. Resistance from the falling 50 day EMA may prevent that from happening.

Daily technical indicators are looking bullish. MACD is rising above its signal line in negative zone. RSI crossed above its 50% level, but is moving sideways. Slow stochastic has climbed up to the edge of its overbought zone.

The index bounced up after receiving good support from its 20 day EMA on Fri. Feb 19, and closed 2.8% higher on a weekly closing basis. However it continues to trade well below its sliding 200 day EMA in bear territory.

On longer term weekly chart (not shown), the index closed 100 points above its 200 week EMA, but below its falling 20 week and 50 week EMAs for the 7th week in a row. The long-term bull market is intact for the time being. Weekly technical indicators are in bearish zones but not showing much upward momentum.

FTSE 100 index chart

The following remarks were made in last week's post on the daily bar chart pattern of FTSE 100: "...positive divergences visible on all three daily technical indicators - which failed to touch new lows with the index - can trigger a sharp rally that squeezes out shorts."

A sharp short-covering rally during the first three days of the week took the index past its 20 day and 50 day EMAs. The index touched a lower top of 6036.50 on Feb 18, formed a 'reversal day' pattern (higher high, lower close) and dropped below its 50 day EMA.

Though the index gained more than 4% on a weekly closing basis, it is trading within a downward channel for the past 4 months. Recent talks about Brexit (Britain's exit from the Eurozone) may put further bearish pressure on the index.

Daily technical indicators are looking bullish, but their upward momentum is weakening.

On longer term weekly chart (not shown), the index closed below its three weekly EMAs. The 50 week EMA has crossed below the 200 week EMA - the 'death cross' technically confirming a long-term bear market. Weekly technical indicators are in bearish zones, but not showing much upward momentum.

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