Monday, February 12, 2018

S&P 500 and FTSE 100 charts (Feb 09, 2018): bears wrest control

S&P 500 index chart pattern

Note the following remark from last week's post on the daily bar chart pattern of S&P 500: "...formation of two downward 'gaps' and strong volumes on down-days should be of real concern for bulls."

On Mon. Feb 5, the index fell sharply below its 50 day EMA to an intra-day low of 2638, and then bounced up a bit to close just below the expected support zone between 2650 & 2700. 

Next day's pullback on short-covering and value buying took the index to the upper edge of the support zone. On Wed. Feb 7, the index touched an intra-day high of 2728 but formed a 'reversal day' bar (higher high, lower close) and closed within the support zone.

The index closed 100 points lower on Thu. Feb 8 after another strong bear attack. On Fri. Feb 9, the index opened trading with an upward gap, only to drop below its 200 day EMA intra-day - for the first time since Nov '16.

The index recovered to close above 2600, forming another 'reversal day' bar (lower low, higher close) with strong volume support that can trigger a technical bounce.

Daily technical indicators are looking bearish and oversold. MACD is falling inside its oversold zone. RSI and Slow stochastic are trying to find support from the edges of their respective oversold zones.

From its Jan 26 top of 2873, the index lost nearly 12% by touching an intra-day low of 2533 on Feb 9. A 20% correction from the top is technically considered the start of a bear market.

Can the index fall more and enter a bear market? The probability appears quite high. However, the index has fallen like a stone from its Jan 26 top. Such a steep fall can't be sustained. 

Expect some pullback and consolidation on short-covering and bottom fishing. That will provide an exit opportunity from a short-term perspective. Long-term investors can start adding to existing large-cap holdings.

On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA, and closed well above its 200 week EMA in a long-term bull market. Weekly technical indicators have corrected overbought conditions and showing downward momentum.

FTSE 100 index chart pattern

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

The index fell vertically below its 200 day EMA to touch an intra-day low of 7079 on Tue. Feb 6. After a brief recovery during the next two days, the index fell slightly lower to an intra-day low of 7073 on Fri. Feb 9 - forming a small 'double bottom' reversal pattern.

By closing at 7092, the index lost 4.7% on a weekly basis and is more than 300 points below its 200 day EMA. Bulls may take solace from the fact that the index found support at a long-term support level (marked by purple horizontal line).

Technical indicators are looking bearish and oversold, hinting at a technical bounce towards the 200 day EMA. (At the time of writing this post, a pullback is in progress with the index trading more than 80 points higher.)

Bears are likely to use any pullback to sell again - as BrExit concerns and a global equity sell-off have coincided to turn the sentiment quite bearish.

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

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