Monday, January 30, 2017

S&P 500 and FTSE 100 charts (Jan 27 '17): bulls well on top but bears refusing to give up

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 has formed a few interesting patterns that will enthuse both bulls and bears.

The index broke out above the small 'symmetrical triangle' pattern with good volume support on Tue. Jan 24. The next day, it formed an upward 'gap' with strong volumes.

On Thu. Jan 26, the index touched a new lifetime high of 2301 but formed a small 'reversal day' bar by closing lower. It slipped down a little more on Fri. Jan 27, but closed with a weekly gain of 1%.

All three EMAs are rising and the index is trading well above them in a bull market. But don't count the bears out just yet.

Note that the three daily technical indicators touched lower tops when the index touched a new lifetime high. The combined negative divergences can trigger a correction or consolidation.

The upward 'gap' formed on Wed. Jan 25 may be the proverbial dark cloud on the horizon. It can be an 'exhaustion gap' that forms after a strong rally. 

There is also a possibility of the entire trading above the 'gap' forming an 'island reversal' pattern should the index fall with a downward 'gap' during the next few days.

An 'island reversal' pattern may not form at all, and the index will probably keep soaring higher. 

The reason for raising a 'red flag' is due to the widening distance between the 50 day EMA and the 200 day EMA and the fact that the index is trading more than 130 points above its 200 day EMA. 

A similar pattern had occurred back in Aug '16 - triggering a two month long correction.

On longer term weekly chart (not shown), the index closed at a lifetime high of 2295 in a long-term bull market for the 47th straight week. All three weekly technical indicators are looking overbought and showing negative divergences by failing to touch new highs with the index.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 dropped below its 20 day EMA and touched an intra-day low of 7131 on Mon. Jan 23. It was the lowest level touched during Jan.

However, the index managed to close above the 7150 level by the end of the day. For the rest of the week, the index consolidated sideways in a 50 points range between 7150 and 7200, and closed just 14 points lower for the week.

Is the worst over for bulls? Daily technical indicators are looking a little bearish. MACD is falling below its signal line in positive zone. RSI received good support from its 50% level and is trying to move up. Slow stochastic is trying to emerge from its oversold zone.

Some more correction or consolidation is likely. 

Note that by touching a low of 7131, the index has retraced about 33% of its 675 point rally from the Dec 2 '16 low to the Jan 16 '17 top of 7354. A Fibonacci retracement of 38.2% can drop the index to 7100. Some support can be expected there.

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market for the 31st week in a row. Weekly technical indicators are in bullish zones but showing downward momentum. 

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