Monday, April 23, 2018

S&P 500 and FTSE 100 charts (Apr 20, 2018): bulls fight back but bears retain upper hand

S&P 500 index chart pattern

The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "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."

Bulls did manage to completely fill 'Gap 3' during last week's trading, but faced resistance from the 2710 level. Bears decided to 'sell on rise'. The index dropped below its 20 day and 50 day EMAs to touch an intra-day low of 2660 on Fri. Apr 20, before closing 10 points higher at its 20 day EMA.

The index appears to have formed a bearish 'rising wedge' pattern (labelled 'Rising Wedge 2'), from which the likely break out is downwards. Strong volumes on Thu. & Fri. are hinting at such a downward break out.

Note that the index had earlier formed 'Rising Wedge 1' during Feb-Mar '18 from which it broke out downwards with a 'gap' (labelled 'Gap 2) on Mar 19. Filling 'Gap 2' should be the next upward target for bulls.

Daily technical indicators are starting to turn bearish. MACD is above its signal line, but facing resistance from its '0' line in neutral zone. RSI has slipped below its 50% level in neutral zone. Slow stochastic is poised to drop from its overbought zone, and can trigger a break out below 'Rising Wedge 2'.

The index is trading above its 200 day EMA in bull territory. However, bears will retain the upper hand as long as the index trades below 'Gap 1'.

On longer term weekly chart (not shown), the index formed a 'shooting star' candlestick and closed at its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is falling below its signal line in bullish zone. RSI is in neutral zone. Slow stochastic has bounced up from the edge of its oversold zone but remains bearish. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 corrected to close just below 7200 and the 50 day EMA on Mon. Apr 16. The next day, it touched a lower intra-day low of 7190 but closed higher at 7226. 

The 'reversal day' bar (lower low, higher close) triggered a smart rally past 7300 and the sliding 200 day EMA into bull territory. The index closed at 7368 on Fri. Apr 20, with a 1.4% weekly gain.

Daily technical indicators are looking bullish and a bit overbought. MACD is rising above its signal line in bullish zone. RSI is rising towards its overbought zone. Slow stochastic is forming a 'double top' reversal pattern inside its overbought zone, and can trigger some correction/consolidation. 

The next overhead resistance can come from the long-term 'support/resistance' level at 7440. (At the time of writing this post, the index has slipped a bit but remains above its three EMAs in bull territory.)

FTSE is in the process of correcting its entire fall of 916 points from its Jan 12 top to its Mar 23 low. By touching 7368 on Fri. Apr 20, the index has retraced a little more than 50% of its fall. 

The next upward target is the Fibonacci 61.8% retracement level of 7443 - which is almost identical to the long-term 'support/resistance' level of 7440. This is one of those interesting coincidences that often occur on technical charts.

On longer term weekly chart (not shown), the index closed above its merged 20 week and 50 week EMAs, and well above its 200 week EMA in a long-term bull market. Weekly technical indicators have corrected oversold conditions. MACD and RSI remain in bearish zones. Slow stochastic is in neutral zone.

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