Monday, February 5, 2018

S&P 500 and FTSE 100 charts (Feb 02, 2018): strong bear attacks trigger sharp corrections

S&P 500 index chart pattern

Three alarm bells were sounded in last week's post on the daily bar chart pattern of S&P 500:

1. "Daily technical indicators are looking extremely overbought. Slow stochastic is showing negative divergence by failing to rise higher with the index."
2. "...the widening distance (nearly 250 points) between the 20 day EMA and the 200 day EMA is technically 'unhealthy'."
3. "A sharp fall towards the 50 day EMA can occur at any time...Strong volumes on the few recent down days indicate bears are active."

Profit booking started from Mon. Jan 29. The index formed a 14 points downward 'gap' the next day and fell further. On Wed. Jan 31, the 'gap' was partly filled when the index touched an intra-day high of 2839 - hinting at further downside.

The entire trading on Thu. Feb 1 occurred below the 'gap', though the index didn't fall much. Another small downward 'gap' of 4 points was formed on Fri. Feb 2. The index succumbed to a global sell-off and fell sharply towards its rising 50 day EMA -  closing 110 points (3.8%) lower for the week.

The index is trading well above its rising 200 day EMA. So, this is a bull market correction, which can be used to add to existing holdings. However, formation of two downward 'gaps' and strong volumes on down-days should be of real concern for bulls.

Daily technical indicators have corrected overbought conditions and are showing strong downward momentum. MACD is still in bullish zone. RSI and Slow stochastic are falling below their 50% levels.

Some more correction, and a test of support from the 50 day EMA is possible. The correction will improve the technical 'health' of the chart. If the index falls below the 50 day EMA, expect good support from the zone between 2650 & 2700. 

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market despite the 110 points correction. Weekly technical indicators are correcting overbought conditions and showing downward momentum. 

FTSE 100 index chart pattern

The following comment appeared in last week's post on the daily bar chart pattern of FTSE 100: "Slow stochastic has entered its oversold zone, and can trigger a technical bounce."

The technical bounce lasted all of one day, as the index closed 6 points higher on Mon. Jan 29. It then proceeded to fall off a cliff - closing below 7450 on Fri. Feb 2, with a loss of 222 points (2.9%) for the week.

(At the time of writing this post, the index has formed a 60 points downward 'gap' and is trading 80 points lower.)

Daily technical indicators are looking bearish and showing downward momentum. More downside and a drop below the 200 day EMA into bear territory is likely.

On longer term weekly chart (not shown), the index closed below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market - despite correcting for the past three weeks. Weekly technical indicators are showing downward momentum.

1 comment:

Subhankar said...

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