Monday, November 7, 2016

S&P 500 and FTSE 100 charts (Nov 04 '16): fall sharply below descending triangle patterns

S&P 500 index chart pattern


The following comments were made in last week's post on the daily bar chart pattern of S&P 500: "A breakdown below the 'descending triangle' pattern and a test of support from the rising 200 day EMA appears imminent."

On Nov 1, the index fell sharply below the support level of 2120 and dropped below its rising 200 day EMA intra-day, but bounced up to close just above 2110. The respite for bulls was short-lived.

The index continued to correct for the rest of the week and closed below the 200 day EMA and the 2090 level, with a weekly loss of almost 2%.

All three daily technical indicators are looking oversold, which can trigger a pullback towards the 200 day EMA and the 2120 level. Bears may use the opportunity to sell again.

Uncertainty about the results of the US Presidential election, and concerns about an interest rate hike by the US Fed may have been reasons for last week's sell-off. 

However, the index had been in a corrective mode after forming a small 'double top' reversal pattern in Aug '16, and subsequently formed a bearish 'descending triangle' pattern. Such bearish patterns - specially when formed at or near a market top - give adequate advance warning of a correction. 

On longer term weekly chart (not shown), the index dropped sharply and closed below its 50 week EMA for the first time in more than 8 months, but closed well above its 200 week EMA in a long-term bull market for the 35th week in a row. Weekly MACD and RSI are looking bearish and showing downward momentum. Slow stochastic has dropped inside its oversold zone, which can trigger a technical bounce.

FTSE 100 index chart pattern


The following comments were made in last week's post on the daily bar chart pattern of FTSE 100: "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." 

On Nov 1, the index dropped below the support level of 6940, but received support from its 50 day EMA and bounced up a bit. But the 50 day EMA failed to provide any further support during the rest of the week.

The index kept falling and closed below the 6700 level - its lowest close in nearly two months, with a weekly loss of 4.3%.

All three daily technical indicators are looking oversold. A technical bounce is likely. Bears may use such a bounce to sell again.

Concerns about the result of US Presidential elections and a likely hard-BrExit may be reasons for the sharp correction last week.

Note that the index had formed a small 'double top' reversal pattern a month back, followed by a 'descending triangle' pattern (refer last week's post). Such bearish patterns -  when formed at or near a market top - give advance warning of an impending correction.

On longer term weekly chart (not shown), the index dropped sharply to close below its 20 week EMA, but closed above its 50 week and 200 week EMAs in a long-term bull market for the 19th week in a row. Weekly technical indicators are looking bearish and showing downward momentum

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