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Monday, February 6, 2017

S&P 500 and FTSE 100 charts (Feb 03 '17): bulls fight off a bear attack

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: "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."

Note that the index opened with a downward 'gap' on Mon. Jan 30 - turning the previous three trading bars into an 'island' (marked by grey ellipse). Though the index dropped sharply below its 20 day EMA and the 2270 level intra-day, it bounced up to close above 2280.

During the next three days, the index consolidated sideways - dropping below its 20 day EMA intra-day but closing above it. On Fri. Feb 3, the index opened with an upward 'gap' and closed above 2290 - filling Monday's downward 'gap' and negating the 'island reversal' pattern.

However, the appearance of any 'reversal' pattern should be treated with respect. Though all three daily technical indicators are in bullish zones, they are showing negative divergences by touching lower tops even as the index touched its highest level of the week on Fri.

All three EMAs are rising and the index is trading above them in a bull market. The Jan 26 lifetime high of 2301 is within handshaking distance. The index should cross above it. This isn't a good time to buy due to the negative divergences visible on the technical indicators.

On longer term weekly chart (not shown), the index closed at a new lifetime high of 2297, and is trading well above its three weekly EMAs in a long-term bull market for the 48th straight week. All three weekly technical indicators are bullish but looking overbought.

FTSE 100 index chart pattern


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

Price charts don't understand arithmetic, but technical traders certainly do. That is the reason why Fibonacci retracement is used to calculate support or resistance levels.

On Mon. Jan 30, the index plummeted below the 7150 level but stopped just above 7100. On the next two days, the 7100 level provided good support to the index, while the 20 day EMA offered resistance.

On Thu. Feb 2 the index slipped down to 7094 intra-day, tested support from its rising 50 day EMA and bounced up to close at its highest level of the week - forming a 'reversal day' bar (lower low, higher close).

That was just the trigger bulls needed to attack. On Fri. Feb 3, the index rose sharply above the 7150 level and its 20 day EMA to close at its highest level in two weeks.

Daily technical indicators are beginning to turn bullish. MACD is below its sliding signal line in positive zone, but has stopped falling. RSI has moved above its 50% level. Slow stochastic is about to emerge from its oversold zone.

The index is trading above its three EMAs in a bull market. Expect bulls to press home their technical advantage.

On longer term weekly chart (not shown), the index has formed a 'reversal bar' (lower low, slightly higher close) and closed well above its three rising weekly EMAs in a long-term bull market for the 32nd week in a row. Weekly technical indicators have corrected overbought conditions but remain in bullish zones.

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