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Monday, May 23, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 - May 20, 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: "A continuation of the correction from the Apr 20 top of 2111 is likely. More ominous for bulls is the formation of a 'head and shoulders' reversal pattern with a 'neckline' at 2040. A breach of the 'neckline' may lead to a correction down to 1970."

The importance of the 2040 level for bulls is clearly visible. On Tue. May 17, the index received support from the 2040 level. The next day, the index dropped below 2040 intra-day, but closed above it. On Thu. May 19, the index dropped all the way to its 200 day EMA, but bounced up to close exactly at 2040.

The 2040 level wasn't breached technically because the index did not close below that level - keeping bullish hopes alive. On the last day of the week, the index faced resistance from its 20 day EMA, but closed above its 50 day EMA with a token weekly gain of about 6 points.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line in negative zone. RSI is moving up towards its 50% level. Slow stochastic has bounced up after receiving support from the edge of its oversold zone.

Note that Slow stochastic is showing positive divergence by touching a higher bottom while the index dropped lower. The index may try to move above its 20 day EMA towards the 2080 level. However, the possibility of another test of support from the 200 day EMA, and a fall below it, seems more likely.

On longer term weekly chart (not shown), the index dropped below its 20 week EMA intra-week but received support from its 50 week EMA, and closed above its three weekly EMAs in a long-term bull market for the 11th week in a row. Weekly technical indicators are in bullish zones but not showing any upward momentum.

FTSE 100 index chart


A struggle for domination between bulls and bears continues on the daily bar chart pattern of FTSE 100. The index managed to cross above its 20 day and 50 day EMAs and the 6200 level intra-day on Tue. May 17, but stopped short of testing resistance from the 200 day EMA.

Bears pounced immediately. The index dropped to close near 6050 on Thu. May 19, before bouncing up to close above 6150 on Fri. May 20, with a weekly gain of about 18 points.

The index has been consolidating sideways within a 'rectangle' pattern during this month. A breakout can occur in either direction. An upward breakout above 6200 can take the index to 6350. A more likely downward breach of 6050 can drop the index to the long-term 'support-resistance level' of 5900.

Daily technical indicators are in bearish zones. MACD is moving sideways below its falling signal line in negative territory. RSI is moving up towards its 50% level. Slow stochastic has emerged from its oversold zone, and showing positive divergence by forming a bullish pattern of 'higher tops and higher bottoms'.

The sideways consolidation may continue a bit longer. 

On longer term weekly chart (not shown), the index closed below its three weekly EMAs in a long-term bear market for the 3rd week in a row. Weekly technical indicators are looking bearish. 

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