Monday, April 16, 2018

S&P 500 and FTSE 100 charts (Apr 13, 2018): bears refusing to release their strangleholds

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 rallied above its 20 day EMA only to face strong resistance from its falling 50 day EMA on Fri. Apr 13. The index formed a 'reversal day' bar (higher high, lower close) and dropped below its 20 day EMA, but recovered to close just above it.

The index gained 2% on a weekly closing basis. Note that the counter-trend rally from the Apr 2 low of 2554 has been accompanied by sliding volumes - which doesn't augur well for the sustainability of the rally.

Daily technical indicators are giving conflicting signals. MACD and Slow stochastic are showing upward momentum. MACD has crossed above its signal line, but remains well within its bearish zone. Slow stochastic is about to enter its overbought zone. RSI is facing resistance from its 50% level.

The index has formed three unfilled downward 'gaps' - marked 'GAP 1', 'GAP 2' and 'GAP 3'. 'GAP 1' - formed on Jan 30 - is a 'breakaway gap' that triggered the correction. The subsequent sharp increase in volumes is an indication that 'GAP 1' may not get filled for a long while.

'GAP 2' and 'GAP 3' - formed on Mar 19 & 22 - are 'runaway gaps' (also called 'measuring gaps' because they tend to form at the mid-point of a move). Since the two gaps are in close proximity, the mid-point of the down move can be selected as the mid-point between the two gaps - which is at about 2720.

That gives a downward index target of about 2590, which has already been met on Apr 2. So, the current leg of the correction is over, but bulls have their work cut out if they want to get back to their glory days. The missile attack on Syria is not going to help the bullish cause.

The first and most critical task for bulls will be to cover/fill 'GAP 3' and 'GAP 2'. Even if both 'gaps' are filled the index can be expected to resume its correction.

On longer term weekly chart (not shown), the index faced resistance from its 20 week EMA for the third straight week, but managed to close above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD and Slow stochastic are looking bearish. RSI is in neutral zone.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 rallied past its falling 50 day EMA and the resistance level of 7200 during the week. The index closed above the 7250 level with a weekly gain of 1.1%.

Daily technical indicators are bullish. MACD is rising above its signal line in bullish zone. RSI has crossed above its 50% level. Slow stochastic is well inside its overbought zone, and can trigger some correction/consolidation.

If the counter-trend rally continues, expect overhead resistance from the 7300 level and the sliding 200 day EMA. (At the time of writing this post, the index is struggling to stay above 7250.)

The combined missile attack on Syria by USA, UK and France last Saturday (Apr 14) may have provided another excuse to bears to 'sell on rise'.

On longer term weekly chart (not shown), the index closed above its 200 week EMA in a long-term bull market, but is facing resistance from its 20 week and 50 week EMAs. Weekly technical indicators are correcting oversold conditions, but remain in bearish zones. 

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