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Monday, October 31, 2016

S&P 500 and FTSE 100 charts (Oct 28 '16): on the verge of breaking down from descending triangle patterns

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 crossed above its falling 20 day and 50 day EMAs on Mon. Oct 24, but fell short of the down trend line of the 'descending triangle' pattern (within which it has been consolidating for the past 2 months).

The index dropped and closed below its 20 day and 50 day EMAs the next day and fell further to test support from the 2120 level before bouncing up a bit. The index closed 15 points lower for the week. 

Strong and rising volumes on four consecutive down days are suggesting bear domination. A breakdown below the 'descending triangle' pattern and a test of support from the rising 200 day EMA appears imminent.

All three daily technical indicators are in bearish zones and showing downward momentum - hinting at some more correction. 

On longer term weekly chart (not shown), the index formed a 'reversal week' bar (higher high, lower close) and dropped below its 20 week EMA, but closed well above its 50 week and 200 week EMAs in a long-term bull market for the 34th week in a row. Weekly technical indicators are looking bearish, and showing downward momentum.

FTSE 100 index chart pattern

The structure of the daily chart pattern of FTSE 100 has become a little bearish. The index has formed a small 'descending triangle' pattern by testing support from the 6940 level on each of the last three days of the trading week.

Frequent tests of a support (or resistance) level weakens it. A breakdown below 6940 and a test of support from the rising 50 day EMA may be on the cards.

Note that the 'descending triangle' pattern formation was preceded by negative divergences visible on all three daily technical indicators - which touched lower tops while the index rose to touch a higher top (marked by long blue arrows).

MACD is falling below its signal line in positive zone. RSI is seeking support from its 50% level. Slow stochastic formed a head-and-shoulders pattern and is falling towards its oversold zone.

On longer term weekly chart (not shown), the index formed a 'reversal week' bar (higher high, lower close) but closed above its three weekly EMAs in a long-term bull market for the 18th week in a row. Weekly technical indicators are correcting overbought conditions. 

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