Stock Chart Pattern - Thermax Ltd. (An Update)

The stock chart pattern of Thermax was last analysed at the beginning of the year when it was struggling to go past 650. That was the 61.8% Fibonacci retracement level of its massive bear market fall from a peak of 968 in Oct ‘07 to a trough of 151 in Dec ‘08.

The spectacular 500 points rise from the low got the stock back into a bull market but the technical indicators were showing negative divergences. I had advised existing holders to book partial profits, and new entrants to wait for a likely correction to enter – as the 650-700 zone was a long-term support/resistance level.

Let us take a look at the one year bar chart pattern of Thermax Ltd to find out if my advice proved useful for investors:

As it turns out, it did – for those who heeded it. Shortly after I posted the previous analysis, the stock broke out above the 650 level on strong volumes – only to face overhead resistance from the 700 level. On Jan 21 ‘10, the stock touched a new high of 745, but it turned out to be a high volume ‘reversal day’ (higher high, lower close).

The month-long correction that followed took the stock below both its 20 day and 50 day EMAs. After a drop of nearly 25% – from 745 to 560 – the stock found support at its previous low, formed another high-volume ‘reversal day’ pattern (lower low, higher close) and moved up sharply to touch the 700 level once more.

The entire month of Mar ‘10 was spent in consolidating within the 650-700 zone. In Apr ‘10, the stock managed to move above the 700 level, which turned into a support level. After reaching a new high of 750 on Apr 23 ‘10, the stock again corrected down to the 650 level and spent May ‘10 consolidating within the 650-700 zone.

In Jun ‘10, the stock finally moved above the 700 level, and this time there was no turning back. The rising 50 day EMA provided good support to the upward journey. A new high of 850 was touched on Jul 26 ‘10 – which again was a ‘reversal day’ but on tepid volumes.

The next three months were spent in another sideways consolidation between 750 and 850. A high-volume break out on Oct 28 ‘10 took the stock above the consolidation range, and the subsequent sharp rally ended the year with a high of 927 and a close bang on the 900 level.

Both fundamentally and technically, the stock is looking overbought and ripe for a correction. On a trailing twelve month (TTM) basis, the stock is trading at a high P/E of 54.6. The loss in the Mar ‘10 quarter is partly responsible for the lower TTM EPS. The excellent Q2 ‘10 results are the probable cause of the recent price spike.

The MFI, RSI and slow stochastic have all entered their overbought zones. The MACD has moved sharply above the signal line. While technical indicators can remain overbought for a while, a correction or consolidation is likely to follow soon.

Bottomline? The stock chart pattern of Thermax Ltd exemplifies the benefit of choosing a fundamentally strong stock and patiently holding it for the long-term. The ability to discern and interpret technical analysis signals enable good entry/exit points for optimising returns. The stock has been a six-bagger from its Dec ‘08 low. Existing holders can book partial profits, if they wish. New entrants should wait for a 15-20% correction.

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Oct 22 ‘10

Dow Jones (DJIA) Index Chart

The Dow Jones (DJIA) index chart pattern continues to grind upwards, but seems to be hesitating as it approaches the Apr ‘10 top of 11309. The index dipped towards the rising 20 day EMA on Tue. Oct 19 ‘10 after opening with a downward gap. The gap got filled the next day. On Thu. Oct 21 ‘10, the Dow touched a high of 11250, a level last reached 6 months ago, but closed the week at 11133 – 70 points higher on a weekly basis.

All three EMAs are rising with the index above them. Volumes picked up during the week. But the technical indicators are showing negative divergences. The slow stochastic is moving sideways, just below the overbought zone. The MACD is positive and touching the signal line, but also moving sideways. The RSI and MFI are both above their 50% levels, but have made lower tops while the Dow made higher tops.

Leading economic indicators are positive and showing no signs of a double-dip recession. Corporate earnings are positive as well, but companies are sitting on their cash and not hiring much. Till the Apr ‘10 top is overcome convincingly, the bears will stay in the fight.

FTSE 100 Index Chart

The FTSE 100 index chart pattern and the Dow chart look like two peas from a pod. The index touched a high of 5787 on Thu. Oct 21 ‘10 – the highest it has reached in 6 months, but closed with a weekly gain of only 38 points. The Apr ‘10 top of 5834 is proving elusive.

All three EMAs are rising with the index above them. Volumes have been nothing to write home about. All four technical indicators are displaying negative divergences – making flat or lower tops as the FTSE moved higher. The notable difference is the MFI, which is below the 50% level due to the low transaction volumes.

The sharpest cuts to public spending since World War II were announced on Wednesday — slashing benefits and cutting public sector jobs with an austerity plan aimed at clearing record debts that swelled during the global financial crisis. Will it work to revive the UK economy? I’m tempted to quote Bob Dylan: “..time will tell just who has fell and who’s been left behind.”

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices are back in bull markets, but are hesitating just below their Apr ‘10 tops. Threats of a double-dip recession may be receding. But the US and UK economies are far from getting back on real growth tracks. Stay invested. Buy selectively - only if you find compelling value.

Stock Index Chart Patterns – Dow Jones (DJIA) and FTSE 100 – Oct 15 ‘10

Dow Jones (DJIA) Index Chart

The Dow Jones (DJIA) index chart pattern closed above the 11000 mark all 5 days of the week, and touched an intra-day high of 11188 on Oct 13 ‘10. Still, the Apr ‘10 top of 11309 has remained elusive. It could be just a matter of time before the Dow reaches a new high. The index has been making a bullish pattern of ‘higher tops and higher bottoms’ since the Jul ‘10 low.

All three EMAs are moving up, with the index above them. Volumes have started to pick up a bit, but the highest volumes was on Friday, which was a ‘down day’. The technical indicators are hinting at a correction. The slow stochastic has dipped from the overbought zone and the %K line has moved below the %D. The MACD is positive and above the signal line, but has stopped rising. Both the RSI and MFI are above their 50% levels, but have made lower tops.

The Dow may be in the process of forming a bullish cup-and-handle pattern that could lead to a stronger rally. This article gives five reasons why the bull party may continue, despite the unexpected rise in unemployment claims. Any drop towards the rising 20 day EMA can be a good opportunity to add.

FTSE 100 Index Chart

The FTSE 100 index chart pattern is playing ‘follow the leader’ with the Dow. The index closed above the 5700 mark three days in a row, but the low volumes do not inspire much confidence. All three EMAs are moving up with the index above them. The bulls are gradually gaining the upper hand.

All four technical indicators have made lower tops as the FTSE continues to make higher ones. The negative divergences could lead to a correction down towards the 50 day EMA. The slow stochastic has dropped from the overbought zone. The MACD is positive and touching the signal line. The RSI is above the 50% level, but drifting down. The MFI is below the 50% level and falling.

Till the Apr ‘10 top of 5834 is crossed convincingly, the bears will try to fight back. Any drop below the 20 day EMA can be used to add.

Bottomline? The chart patterns of the Dow Jones (DJIA) and FTSE 100 indices are back in bull markets. The stuttering economic recoveries in the USA and UK are keeping bear hopes alive. Buy the dips, but select the stocks (or funds) carefully.

FTSE 100 Index Chart Pattern – Oct 08, '10

The FTSE 100 index chart pattern had last closed above the 5600 level on Sep 20 ‘10 before slipping into a sideways consolidation for the next 10 sessions, during which it failed to close above the 5600 mark. Last week, the index emerged from the sideways consolidation by going above the 5700 mark on an intra-day basis for the first time since Apr ‘10, and had four straight closes above the 5600 level.

The FTSE 100 received good support from the rising 20 day EMA and all three EMAs are rising with the index above them. Since the low of Jul ‘10, the index continues in a ‘higher tops and higher bottoms’ bullish pattern and is back in a bull market. Volumes have started to pick up a bit, but remains muted. That is a concern.

The 6 months bar chart pattern of the FTSE 100 index shows a bullish rounding-bottom pattern that is more clearly visible in the 50 day EMA:

For the bulls to regain control, the Apr ‘10 top of 5834 needs to be crossed on strong volumes. Friday’s (Oct 8 ‘10) close was less than 200 points lower, so it could be a question of time before the FTSE 100 touches a new high. But without volume support, the rally could fizzle out again.

The technical indicators are showing negative divergences. The slow stochastic has slipped below the overbought zone and has made a lower top. The MACD is flat in positive territory and touching the signal line. It has also made a lower top. The RSI dropped to the 50% level before bouncing up. The MFI is looking the weakest and is below the 50% level.

The bears are lurking around the corner and a correction down to the 50 day EMA could be on the cards. At the time of writing this post, the FTSE 100 is trading in a narrow range of 25 points near last Friday’s closing level.

Bottomline? The chart pattern of the FTSE 100 index is trying to emerge from a 6 months long consolidation period, and is still not quite out of the woods. Stay invested with trailing stop-losses. Fresh buying can be considered after a high volume break out above the Apr ‘10 top.

NSE Nifty Index Chart Pattern – Oct 08, ‘10

The NSE Nifty index chart pattern touched a new high of 6223 intra-day on Wed. Oct 6 ‘10. The index had earlier touched 6222 on Mon. Oct 4 ‘10. This doesn’t count as a double-top because they occurred so close to each other.

The negative divergences in the technical indicators, the widening gap between the 50 day and 200 day EMAs and the volume action last week had given warning signs of an impending correction. It was no great surprise that the Nifty lost ground on the last two days of the week.

In spite of the heavy volumes on the two down days, the index got support at the top of the narrow trading range from which it had broken out last Friday (Oct 1 ‘10). Let us look at the 6 months bar chart pattern of the NSE Nifty index to assess this week’s trading:  

The technical indicators have turned weaker, though they have not turned bearish yet. The MACD is positive, but has slipped below the signal line. The RSI and slow stochastic has dipped below their overbought zones. The MFI has fallen below the 50% level, and may be hinting at a continuation of the correction next week.

The point of interest is that the FIIs remained net buyers through the week. It is the heavy selling by the DIIs that caused the dip in the index. Much of the DII selling is the result of redemption pressure from individual investors taking profits off the table. Many still remember the devastation to their portfolios caused by the 2008 bear market.

The Nifty 50 got support from the top of the narrow trading range today, and there is a possibility of a bounce up next week. For that to happen, FII buying has to pick up. The recent strictures on FII trading by SEBI may have slowed down their bullish fervour a bit. The hurdle of this week’s top of 6223 needs to be overcome.

Downside supports are likely at 5990 (20 day EMA), 5932 (lower edge of the narrow trading range), 5760 (50 day EMA) and 5550 (top of the year-long consolidation range). The India growth story has now received worldwide investor attention, so there is little chance of a big crash like the one in 2008.

The Government is thinking of allowing Foreign Direct Investment (FDI) in multi-product retail business, which will be a huge plus for attracting investments and employment for the massive number of less-skilled youth of the country. Another plus would be allowing individual overseas investors to buy Indian stocks.

But the biggest plus of all, at least in the short term, will be QE2 (Quantitative Easing, Part 2 – which means another round of printing dollars and euros to revive the ailing western economies). Much of that newly printed cash is likely to make a beeline for emerging market stocks.

Bottomline? The chart pattern of the NSE Nifty index is taking a much needed breather after a break out. A pullback to the 5550 level will restore the overall health of the market, and prime it for a push past the all-time high of 6357. Stay invested as per your asset allocation plan. Reallocate as required. Get rid of junk. Book some partial profits. Buy only if you find compelling value – not otherwise.

NSE Nifty Index Chart Pattern – Oct 01, ‘10

In last week’s maiden analysis of the NSE Nifty index chart pattern, I had mentioned that the minimum upward target for the breakout above the 5550 level was 6150. Why minimum? When an index or stock trades within a consolidation channel for a while – a long while in our case – the target is the width of the consolidation channel added to the breakout point. In strong bull and bear markets, targets are often overshot.

Interestingly, today’s intra-day high was 6153. Our minimum target has been met. What next? Will the Nifty move up to test its all-time high of 6357 – touched intra-day on Jan 8 ‘08? For the sake of the market’s health, it better not happen right away.

Several strongly bullish events happened on Thursday, Sep 30 ‘10 and today (Friday, Oct 1 ‘10). Thursday’s closing level of 6030 was the highest monthly closing level after 33 months. The previous, and all time, highest monthly closing level was 6139 on Dec 31 ‘07. Today’s closing level of 6143 was the highest weekly closing level since Jan 11 ‘08 and the highest daily closing level since Jan 15 ‘08. There is every possibility of the index making the final dash of 200 odd points next week.

Does it mean that the much-awaited correction isn’t going to happen? For the answer, we have to take a look at the 6 months daily bar chart pattern of the NSE Nifty index:

The consolidation within a small rectangle – which started the previous week after the index touched the 6000 level - continued for four more trading sessions this week, till today’s break out. All three EMAs are moving up with the index above them – a bullish sign. But note that volumes on down days within the rectangle were higher than some of the up days. Wednesday’s (Sep 29 ‘10) down day volume was more than today’s break out day volume. A sign of distribution.

The MACD was about to cross below the signal line, which would have been bearish. Today’s bounce up could not reach a new high. The RSI has made a lower top in the overbought zone. The MFI has also made a lower top, and dropped from the overbought zone. The slow stochastic is in the overbought zone and drifting down a bit. All four indicators are showing negative divergences, pointing to a correction in the near term.

Last, but not the least, is an empirical observation about the distance between the 50 day and 200 day EMAs. Every time the 50 day EMA moves 400-500 points above the 200 day EMA, the Nifty has a correction. The current distance between the two EMAs is about 410 points. Is a correction imminent? One can never be certain with technical analysis.

However, prudence demands that investors remain cautious and nimble because the Nifty is just 200 points below its all-time high, and the technical indicators are flashing warning signals. A pullback towards the long-term trading channel would be equivalent to a 10% correction, and is always on the cards.

Food inflation continues to rise. Banks have started to hike fixed deposit rates as RBI’s credit squeeze begins to take effect. A slew of IPOs are draining away cash from the secondary market. Q2 results are two weeks away, and good results are already ‘discounted’ by the stock market. Which means any negative earnings surprises could become the trigger for a sell-off.

Bottomline? The chart pattern of the NSE Nifty index has achieved its upside target and is poised to test the all-time high. Investors should remain circumspect and book profit in stocks that have run up too fast. Fresh entry should be contemplated after the Q2 results are announced, or after a 10-15% correction, or both.

Dow Jones (DJIA) Index Chart Pattern – Sep 17, '10

In last week’s analysis of the Dow Jones (DJIA) index chart pattern, I had mentioned that the resistance level of 10500 was likely to be overcome soon, though the technical confirmation of the bull market was still awaited.

The index went above the 10600 level on intra-day basis on all five days, and closed above the 10500 level on the first four days of the week. On Friday (Sep 17 ‘10), the Dow finally closed above the 10600 level for a 145 points (1.4%) weekly gain.

The 20 day EMA crossed above the entangled 50 day and 200 day EMAs, and the 50 day EMA has also edged above the longer-term moving average. The Aug ‘10 top of 10756 is less than 150 points (1.5%) away, and may not provide too much resistance. On moving above that level, a bullish ‘higher tops and higher bottoms’ pattern will get formed.

The 3 months bar chart pattern of the Dow Jones (DJIA) index shows that the bulls are slowly but surely regaining the upper hand in spite of the less than encouraging economic recovery:

  

Note that last week’s volumes recovered some what, though they are far from strong. The technical indicators are looking quite bullish. The slow stochastic and MFI have entered their overbought zones. The RSI is about to follow suit. The MACD is above the signal line, and rising in positive territory.

The Asian markets traded flat today (except India). At the time of writing this post, European indices are trading about 1% higher. The Dow is trading at the 10700 mark – nearly 1% higher. Is risk appetite returning?

The relentless spike in gold’s price seems to indicate otherwise. The economic news continues to be mixed. Actual unemployment claims have been falling steadily and have reached a 2 year low (as per this article). But the widely-followed University of Michigan Consumer Sentiment Index report was the weakest since Aug ‘09.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is back in a bull market. Crossing the Aug ‘10 top of 10756 should scare off the last of the bears. Buy selectively, and maintain strict stop-losses.

Dow Jones (DJIA) Index Chart Pattern – Sep 10, '10

The bulls returned from the Labor Day holidays with their batteries fully recharged, and shook off the last of the bears from the Dow Jones (DJIA) index chart pattern.

The better-than-expected unemployment news helped the bullish cause. A closer look at the data may reveal that a number of states did not report the actual figures due to the holiday, so the figures were ‘estimated’.

Volumes were on the low side. Friday’s close of 10463 was Dow’s highest close in a month, but on the lowest volumes of the week and barely 15 points higher on a weekly basis.

The 3 months bar chart pattern of the Dow Jones (DJIA) index shows the probable beginning of another bull rally without much volume support:

 

Tuesday (Sep 6 ‘10) saw the index open near the previous Friday’s close, but drop down to test support from the entangled 50 day and 200 day EMAs. That was a last ditch effort from the bears.

From Wednesday onwards, the Dow rose to test the long-term support-resistance level of 10500 – but closed slightly below it. Note that the 20 day EMA has moved up to touch the 50 day and 200 day EMAs.

The resistance from the 10500 level has been tested three times in quick succession. A fourth test may breach it. (At the time of writing this post, the Dow is trading 50 points above the 10500 level – but needs to close above it for 2-3 days for the breach to be valid.)

The technical indicators are looking bullish. The slow stochastic is about to enter the overbought zone. Both the RSI and MFI are above their 50% levels. The MACD is above the signal line and just turned positive.

Is the bull market here to stay? It would seem so, if you believe the author of this article. Should you throw caution to the wind and start buying? Not till the Aug ‘10 top of 10756 is crossed.

Most Asian and European indices are back in bull territory. The fears of double-dip recession and sovereign defaults are receding to the background. If the Republicans win the November elections, the bulls may start to sing ‘happy days are here again’.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is all set to re-enter the bull market. Only the technical confirmation – the 20 day and 50 day EMAs moving above the 200 day EMA – is awaited. Buy selectively, and maintain strict stop-losses.

Stock Index Chart Patterns - FTSE 100, DAX, Stockholm General – Sep 10, '10

FTSE 100 Index Chart

The FTSE 100 index chart pattern had given enough indication a week ago that the momentum had swung towards the bulls. The receding volumes and negative divergences in the technical indicators were a concern.

The index failed to progress during the first three days of the week. Volumes were tepid on Mon. Sep 6 ‘10, and picked up on Tuesday’s down day. Volumes rose on the next two up days, as the FTSE 100 first crossed the 5500 level intra-day, and then closed the week at 5501 – its highest close in more than 4 months.

The 20 day EMA has moved above the 200 day EMA and the 50 day EMA has got its nose above the long-term moving average. A bullish ‘higher tops – higher bottoms’ pattern has formed since the index hit the low of 4790 on Jul 1 ‘10. The FTSE 100 is technically back in a bull market. The Apr ‘10 top of 5834 is the lone hurdle in the path of the bulls.

The technical indicators are looking bullish. The slow stochastic is in the overbought zone. The MACD is above the signal line, and rising in positive territory. The RSI and MFI are both above their 50% levels and climbing. The negative divergences in the MACD and RSI, which failed to make new highs with the index, remain the only hope for the bears to stall the bull charge.

DAX index chart

The DAX index chart had spent 3 trading sessions below the 200 day EMA in early Jul ‘10. In end Aug ‘10, a slightly longer spell (of 6 days) below the 200 day EMA was followed by a jump up into the bull market.

The DAX closed the week above the 6200 level, and looks all set to make a new high past the Aug ‘10 top of 6387. The 20 day EMA has crossed above the 50 day EMA, and all three EMAs are moving up with the index above them.

The technical indicators are supporting the bulls. The slow stochastic has entered the overbought zone. The MACD is above the signal line and has turned positive. The RSI and MFI are both above their 50% levels.

Stockholm General index chart

The Stockholm General index chart pattern spent just a day below the 200 day EMA before resuming its bull charge. It closed the week at 335, which is less than 1% below its Aug ‘10 top of 338 and less than 2% below the Apr ‘10 top of 341. One can expect a new high very soon.

The 20 day EMA has moved above the 50 day EMA, and all three EMAs are moving up with the index above them. The technical indicators are looking bullish. The slow stochastic is in the overbought zone. The MACD is above the signal line and rising in positive territory. The RSI is above the 50% level and the ROC is rising in positive territory.

Is it ‘game over’ for the bears? Take a look at the higher bottom made by the Swedish index in late Aug ‘10. The MACD, RSI and ROC made lower bottoms. The negative divergences may lead to a correction down to the 20 day EMA. That would be an opportunity to add.

Bottomline? The chart patterns of the European indices are back in bull markets after decent corrections. They are within handshaking distances of their 52 week highs. One can buy the dips, but with strict stop-losses.

Stock Index Chart Patterns - FTSE 100, Swiss Market, Madrid General – Sep 03, '10

FTSE 100 Index Chart

Just when the bears were getting ready to take the FTSE 100 index to lower depths, the bulls executed a neat bear-trap. Volumes were good on Tue. Aug 31, ‘10 but the resistance from the confluence of the three EMAs stalled the day’s rally.

On Wed. Sep 1 ‘10, the index jumped above all three EMAs and closed at the highest point of the day, but on lower volumes. Volumes dwindled as the FTSE 100 rose higher. The index closed with a weekly gain of 224 points at 5428 – its highest close in nearly 4 months.

The three EMAs are still entangled and the index has moved well above them. But the decreasing volumes during the week’s rise is a concern. The slow stochastic (above its 50% level), the MACD (positive and above the signal line) and RSI (above its 50% level) are all looking bullish – but made lower tops as the index moved higher. Only the MFI (also above its 50% level) rose higher with the index.

Unless there is follow-up buying next week, the rally may not proceed very far. But the momentum has swung towards the bulls for now.

Swiss Market (Switzerland) index

My first look at the Swiss Market (Switzerland) seems auspicious. The index closed more than 100 points higher on a weekly basis and bang on the 6400 level – its highest close in more than 2 months. More importantly, it moved above the 200 day EMA, after remaining below the long-term moving average for 10 weeks.

Volumes peaked on Wed. Sep 1, ‘10 but dropped on the next two days as the index moved higher. Negative divergences are clearly visible in all the four technical indicators – which made lower tops while the Swiss Market moved higher.

The technical indicators are mildly bullish. The slow stochastic and MFI are both above their 50% levels. The RSI is at the 50% level. The MACD is negative, but above the signal line.

The 50 day EMA is below the 200 day EMA. The 20 day EMA is below the 50 day EMA, though it is trying to move above the medium-term moving average. The bears hold the advantage.

The Apr 15 ‘10 top of 6991 is the barrier the bulls need to cross for the index to re-enter a bull market. Doesn’t seem an easy task at this stage.

Madrid General (Spain) index

The Madrid General (Spain) index is in the midst of a similar, yet less convincing, bull rally. It closed 46 points (4.4%) higher on a weekly basis, and above the 200 day EMA, but is yet to cross its Aug ‘10 high of 1133.

The 20 day EMA is above the 50 day EMA, but both are below the 200 day EMA. The bears hold the advantage, though the technical indicators are turning bullish.

The slow stochastic, RSI and MFI are above their 50% levels. The MACD is touching the signal line in negative territory. Note that all the four indicators made lower bottoms in Aug ‘10 than the ones made in Jul ‘10, while the Madrid General index made a higher bottom. The negative divergences could put a quick end to the bull rally.

Bottomline? The European indices are fighting hard to get out of tight bear grips. The bears have weakened a bit, but have retained their hold. The worst isn’t over yet for the European economies, and the charts are reflecting that. Very selective buying in the FTSE, and a ‘hold’ in the Madrid General and Swiss Market advised.

Dow Jones (DJIA) Index Chart Pattern – Aug 27, '10

The chart pattern of the Dow Jones (DJIA) index behaved like a drowning person last week – desperate to clutch at whatever index level seemed to be floating by.

On Monday, Aug 23, ‘10 it rose all the way to the 200 day EMA intra-day, tried to hang on but fell back and closed lower at 10174. That was the highest close for the week, on the lowest volumes. I had mentioned about the support zone between 10100 – 10200, but the bulls failed to regroup for a pullback.

The next day, the Dow dropped to 10040 on higher volumes. On Thursday, Aug 26, ‘10, the index closed below the psychological 10000 level. Friday’s sharp recovery was probably due to some bottom fishing aided by short covering. The index managed to close at 10150 – bang in the middle of the support zone, which is now likely to turn into a resistance zone.

The 3 months closing chart pattern of the Dow Jones (DJIA) index chart pattern gives a clear indication that the bears are in no mood to relent, despite Friday’s buying:

The 20 day EMA has slipped below both the 50 day and 200 day EMAs. The 50 day EMA is resting on the 200 day EMA. If it falls below the long-term moving average as well, the bear market will be technically confirmed. As long as the Jul 1, ‘10 low of 9596 holds, the bulls will have some hope.

The technical indicators are not giving any encouragement to the bulls. The slow stochastic and the RSI are in their oversold zones. The MACD is negative and below the signal line. The MFI is below the 50% level.

The fundamental news isn’t any better. GDP growth was revised downwards to a pitiful 1.6%. Unemployment is up. Home sales are down. All that Mr Bernanke promised near the foot of the picturesque Grand Tetons was that he will provide more stimulus if the economy gets much worse. That obviously means that the ‘substantial progress’ he mentioned last year has remained a dream.

Bottomline? The Dow Jones (DJIA) index chart pattern is exhibiting a bearish ‘lower tops – lower bottoms’ pattern. Sell on rises.

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 27, '10

FTSE 100 Index Chart

The 3 months closing chart pattern of the FTSE 100 index mostly has bad news for the bulls. So, let me start with good news. After falling below the 5100 level intra-day on Wed. Aug 25, ‘10, the index moved up on Thursday and Friday on increasing volumes to close just above the 5200 level. The FTSE 100 actually gained 6 points on a weekly basis.

Before the bulls get enthused and start to plan a new rally, here is a litany of bad news. Monday’s close of 5235 was the highest of the week on the lowest volumes. The resistance from the confluence of the three EMAs proved too strong for the index. Volumes picked up during the 125 point drop to Wednesday’s close of 5109 – a sign of distribution.

The 20 day and 50 day EMAs have both slipped below the 200 day EMA with the FTSE 100 below them. Sign of a bear market. The slow stochastic has just emerged from the oversold zone. The MFI has moved up to the 50% level. The RSI is below the 50% level. The MACD has stayed below the falling signal line for two weeks and has turned negative.

Any up moves are likely to face resistance from the three EMAs and the down trend line joining the tops made on Aug 9 ‘10 (5410) and Aug 17 ‘10 (5350). Watch the July 1, ‘10 low of 4790 closely. A fall below can take the FTSE 100 much lower.

DAX Index Chart

This is what I had surmised about the behaviour of the DAX index chart pattern in last week’s analysis:

“A bearish ‘lower top – lower bottom’ pattern is compounded by another bearish head-and-shoulders pattern that can lead to a dip below the long-term moving average.

Previous forays below the 200 day EMA have been brief, followed by sharp recoveries. So, there is no need to rule out a similar bounce back by the bulls yet.”

Readers may think that I am a professional soothsayer masquerading as a technical analyst. The fact is, it was an educated guess that worked. The DAX dropped below the 200 day EMA on Tuesday, Aug 24, ‘10 but stayed below the long-term moving average for just 3 days – much like it had done in early July ‘10.

On Friday, the DAX moved up to close almost exactly on the 200 day EMA. What next? The technical indicators are hinting that any up move may peter out near the falling 20 day and 50 day EMAs. Monday’s highest close of 6011 was accompanied by the lowest volumes of the week, while Wednesday’s lowest close of 5899 had the highest volumes. Not your typical bullish behaviour.

The MACD is negative and below the signal line. The RSI and MFI are both below their 50% levels. The slow stochastic is in the oversold zone. Technically, the DAX is still in a bull market – but the bulls are on shaky ground. The MACD, RSI and MFI have made lower bottoms than the ones made in Jul ‘10, while the DAX has made a higher bottom. A negative divergence.

CAC 40 Index Chart

The CAC 40 index chart pattern shows the final confirmation of a bear market. The 20 day EMA has dropped below the 50 day EMA, and all three EMAs are moving down with the index below them.

The MACD is negative and below the signal line. The RSI and MFI are below their 50% levels. The slow stochastic is in the oversold zone. The index has made a much higher bottom than the one made in Jul ‘10, but not well supported by the technical indicators.

Any pullback effort by the bulls is likely to stall near the falling 20 day and 50 day EMAs.

Bottomline? The bears have tightened their grip further on the European indices. Sell on rises should be the tactic for the FTSE 100 and CAC 40. Very selective buying on a clear move above the 200 day EMA for the DAX.

Dow Jones (DJIA) Index Chart Pattern – Aug 20, '10

The Dow Jones (DJIA) index chart pattern had been saved by the 200 day EMA from lapsing into a bear market, but in last week’s analysis, I had pointed out that the reprieve could be short-lived. The technical indicators had signalled a continuation of the correction.

Using the support from the 200 day EMA, the bulls attempted a pull back that was resisted by the falling 20 day EMA. The Dow fell below the 200 day EMA and is in danger of reverting to a bear market. The technical confirmation – the 20 day and 50 day EMAs both dropping below the longer-term moving average – is still awaited.

A look at the 3 months closing chart pattern of the Dow Jones (DJIA) index will show that the bulls are walking a tight rope:

  

The 20 day EMA is almost touching the 50 day EMA, and both moving averages are drifting down, but remain above the 200 day EMA. There is support in the 10100-10200 zone, which can help the bulls to try another pull back.

Volumes were the highest on Thursday’s down day – a sign of distribution. The technical indicators have weakened further and does not support any bullish hopes. But the Dow has defied the bears time and again, so the possibility can’t be ruled out.

The slow stochastic is at the edge of the oversold zone. The MACD is below the signal line and almost at the ‘0’ level. The RSI and MFI are both below their 50% levels. Any rise in the Dow is likely to provide selling opportunities to the bears.

Last week’s spike in the unemployment numbers confirmed the gradual realisation of market players that the economic recovery so far is a jobless one. The official figures are a lot less than the actual unemployment numbers. Spectre of a double-dip recession is looming on the horizon again. Any further money printing may lead to inflation.

Bottomline? The Dow Jones (DJIA) chart pattern has formed a bearish ‘lower top – lower bottom’ pattern and dropped below the 200 day EMA. These are bear market signals. Things may get a bit worse before it can get better. Book profits on rises.

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 20, '10

FTSE 100 Index Chart

The FTSE 100 index chart pattern made a feeble effort at a pull back, using the support from the entangled 50 day and 200 day EMAs. The effort was short-lived. The weak technical indicators and low volumes led to the inevitable drop back into a bear market – as foreseen last week.

The index not only lost 180 points on a weekly basis, but closed the week below the 200 day EMA and the 5200 level. In the process, the FTSE 100 chart has made a bearish ‘lower top – lower bottom’ pattern. Also note a bearish ‘rounding top’ pattern formed by connecting the Jul ‘10 and Aug ‘10 tops.

The rally from the Jul 1, ‘10 low of 4790 appears to have ended, signalling the onset of the next leg of the bear market, which will be confirmed when the index drops below 4790. The technical indicators are supporting that prognosis.

The 20 day EMA has started to drop and is likely to fall below the merged 50 day and 200 day EMAs soon. Higher volumes on down days suggest distribution. The slow stochastic has almost dropped to the oversold zone. The MACD is below the signal line and barely in positive territory. The RSI and MFI are both below their 50% levels.

DAX Index Chart

The weak pull back effort by the DAX index chart pattern was cut short by a ‘reversal day’ pattern on Thurs. Aug 19, ‘10. The index touched a high of 6229 but closed 150 points lower by the end of the day on good volumes.

The fall continued on Fri. Aug 20, ‘10 and after briefly slipping below the 6000 level intra-day, the index closed at 6005 – more than 100 points lower on a weekly basis.

Technically, the DAX will remain in a bull market as long as it stays above the 200 day EMA. However, a bearish ‘lower top – lower bottom’ pattern is compounded by another bearish head-and-shoulders pattern that can lead to a dip below the long-term moving average.

Previous forays below the 200 day EMA have been brief, followed by sharp recoveries. So, there is no need to rule out a similar bounce back by the bulls yet.

The technical indicators don’t hold out immediate bullish promise. The slow stochastic is at the edge of the oversold zone. The RSI and MFI have both slipped below their 50% levels. The MACD is below the signal line and barely positive.

CAC 40 Index Chart

There is no doubt whatsoever about which animal is dominating the CAC 40 index chart pattern. The bears are poised to hammer in the last nail in the bull coffin – just waiting for the 20 day EMA to drop below the 50 day EMA.

Volumes increased on Thursday and Friday as the index fell. A clear sign of distribution. The technical indicators are looking weak but not oversold – which means the correction is likely to continue next week.

The slow stochastic is about to enter the oversold zone. The RSI and MFI are below their 50% levels. The MACD is below the signal line and marginally in positive territory.

Bottomline? The bears are tightening their grips on the European indices. The FTSE 100 and CAC 40 chart patterns are back in bear markets, awaiting a final technical confirmation that will open up shorting opportunities. The DAX chart pattern is still above a rising 200 day EMA, and a bounce up from the 5800-6000 zone may provide buying opportunities. 

Dow Jones (DJIA) Index Chart Pattern – Aug 13, '10

The Dow Jones (DJIA) index chart pattern was looking bullish last week, but dwindling volumes leading to a negative divergence in the MFI, and a ‘rising wedge’ pattern kept bearish hopes alive.

The inability of the Dow to convincingly move above the 10655 level (61.8% Fibonacci retracement level of the recent correction from the Apr ‘10 top of 11309 to the Jul ‘10 bottom of 9596) provided the bears with the impetus to launch a strong counter attack.

On Mon. Aug 9 ‘10, the index touched an intra-day high of 10756 and closed at 10699 – its highest close since May 13 ‘10 – on the lowest volumes of the week. The bears struck the next day, and the index tumbled down from the rising wedge pattern, and below the 20 day and 50 day EMAs, on increasing volumes.

The Dow lost 350 points (3.3%) on a weekly basis. The 200 day EMA saved the Dow from lapsing into a bear market, but the reprieve may be temporary. The 3 months bar chart pattern of the Dow Jones (DJIA) index shows that the bears are note done yet:

 

Both the 20 day and 50 day EMAs have changed directions, though they are still above the flat 200 day EMA. The slow stochastic, RSI and MFI have all dropped below their 50% levels. The MACD is still positive, but is below the signal line and falling.

Is this going to be a temporary 4-5 days correction, or is it the harbinger of a bigger fall? Apparently, a technical pattern called ‘Hindenburg Omen’ has formed. Since 1985, every crash in the NYSE has been preceded by this dreadful omen – as per this article.

The fundamental news continue to be mixed. Retail sales in July rose 0.4%. The CPI rose 0.3%, its first rise in 4 months. Before bulls get too excited, they should read this WSJ article. Rent data make up nearly a third of the CPI. As house prices have plummeted, house rents have increased as more people walk out of mortgages to rent homes instead. If rent data is excluded, CPI may turn negative.

Bottomline? The chart pattern of the Dow Jones (DJIA) index has quickly turned from bullish to bearish in a week. If the 200 day EMA is unable to support the index, bear market strategy – sell on rises – should apply. Put your ‘buy’ list away for now.

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 13, '10

FTSE 100 Index Chart

The FTSE 100 index chart pattern behaved like a textbook example in technical analysis. In last week’s analysis, I had mentioned that the rising volumes while the index dipped was a sign of distribution. Negative divergences in the RSI and MFI were also worrying signs for the bulls.

The index spurted up on Monday (Aug 9 ‘10) in a desperate effort to shake off the bears and tried to test the May 13 ‘10 intra-day and closing highs - but fell short by 20 odd points. The weak volumes didn’t help the bull cause.

The FTSE 100 quickly dropped down on the next two days on rising volumes, and received expected support from the entwined 50 day and 200 day EMAs. The small upward bounce on the last two days of the week could not move the index above the 5300 level or the 20 day EMA. The FTSE 100 lost 1% on a weekly basis.

The technical indicators are looking bearish. The slow stochastic has fallen to the 50% level. The MACD is positive, but has slipped below the signal line. The RSI and MFI are both below their 50% levels.

The bullish pattern of higher tops and bottoms has been broken. The index may try a pullback to the trend line connecting the recent (higher) bottoms. Without volume support, any up moves will be short-lived, and there is every possibility of the FTSE 100 dropping back into bear country (i.e. below the 200 day EMA).

DAX Index Chart

 

The DAX index chart pattern made a new closing high of 6352 on Mon. Aug 9 ‘10, but low volumes failed to move the index past previous Friday’s reversal day top of 6387. Volumes picked up during the rest of the week as the index dropped below the 20 day EMA, and closed the week below the 50 day EMA. The DAX lost 2.4% on a weekly basis.

The up trend line connecting the recent (higher) bottoms in Jul and Aug ‘10 have been broken, and a pullback attempt by the bulls can be expected. But the technical indicators have turned weak, which could lead to a drop towards the 6000 level and the rising 200 day EMA.

The slow stochastic has slipped below the 50% level. Likewise for the RSI. The MFI is barely above the 50% level. The MACD is positive, but below the signal line.

The German economy is in better shape than most of its European neighbours, and there is no immediate threat of the DAX index moving into a bear market.

CAC 40 Index Chart

The CAC 40 index chart could not remain above the 200 day EMA for long. In last week’s analysis I had observed a negative divergence in the MFI, and the RSI had risen sharply to the overbought zone. A consolidation or correction was, therefore, expected.

The index fell quickly on rising volumes and closed below all three EMAs – re-entering the bear market, and losing 2.8% on a weekly basis. The 20 day EMA is above the 50 day EMA, but all three EMAs are heading down.

The technical indicators have turned bearish. The slow stochastic and the MFI are below their 50% levels. The RSI is at its 50% level. The MACD is positive but below the signal line.

Bottomline? The chart patterns of the European indices are showing the after-effects of a strong bear attack, following five weeks of bull dominance. On the longer-term charts, the FTSE 100 and CAC 40 are looking weak, and any pullbacks can be used to book profits. The DAX chart is looking bullish. Any dips can be used to add.

Dow Jones (DJIA) Index Chart Pattern – Aug 06, '10

In last week’s analysis of the Dow Jones (DJIA) index chart pattern, I had mentioned about the significance of the 10655 level – the 61.8% Fibonacci retracement level of the correction from the Apr ‘10 top of 11309 to the Jul ‘10 low of 9596.

The logic behind the 61.8% Fibonacci retracement level is that once the chart moves above that level, the correction is deemed to be over. Let us now look at the 3 months bar chart pattern of the Dow Jones (DJIA) index:

The index rose above the 10655 level on intra-day basis on all 5 days of the week. On Monday, Wednesday and Thursday (Aug 2, 4, 5 ‘10), it managed to close higher than the 10655 level. On Tuesday, it closed marginally below.

On Friday, following the disappointing employment report, the Dow fell sharply below the 10500 level. But it recovered smartly to close bang on the 10655 level – a 190 points higher close on a weekly basis. But technically, the 10655 level has not been overcome.

It doesn’t cease to amaze me how the 61.8% Fibonacci retracement level becomes the battle line between the bulls and bears so often. There is a logical explanation (if such a thing exists for stock market behaviour!). Both sides are equally aware of this important technical level.

So, is the Dow headed up or down from here? That’s a million dollar question. The technical indicators are mostly favouring the bulls. The 50 day EMA has moved above the 200 day EMA – the final confirmation of a return to the bull market. All three EMAs are moving up with the index above them.

The slow stochastic is inside the overbought zone. The MACD is positive and above the signal line. The RSI is about to enter its overbought zone. The MFI is just above the 50% level, but showing negative divergence – it failed to make a new high with the index.

The bears haven’t quite run out of ammunition yet. Volumes have dwindled during the rally from the Jul ‘10 low – not a good sign for sustainability of a bull market. The index has been trading inside an ascending wedge pattern. It tried to break downwards from it on Friday, but failed.

The economic recovery is more like a mirage. Employment news is bad, housing news is bad, consumer sentiment is bad. Quarterly results of companies were good, but only in comparison with much lower figures of last year. Still the index keeps moving up.

Is this disconnect between the economy and the stock market an aberration? Why worry about it? Maintain trailing stop losses and stay invested. Any buying should be very selective.

Bottomline? The chart pattern of the Dow Jones (DJIA) index is looking quite bullish. The immediate hurdle for the bulls will be the Apr ‘10 top of 11309. Stay invested, book part profits but please do not short-sell this market.

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX – Aug 06, '10

FTSE 100 Index Chart

The FTSE 100 index chart pattern is making steady progress into bull territory. The bounce up from the 200 day EMA wasn’t a surprise – the bunching together of the three EMAs had hinted at such a possibility last week.

The lack of volume support for the up move saw the index dip down before it could touch the 5400 level. Volumes were low on the first two days of the week when the index closed flat at 5397, but picked up as the index slid down on the last three days. Signs of distribution.

The technical indicators are giving off mixed signals. On one hand, all three EMAs are moving up. The 20 day EMA has crossed above the 200 day EMA, and the 50 day EMA is trying to do the same.

On the other, the slow stochastic, RSI and MFI made lower tops as the index made a higher one. The negative divergences are a cause of worry for the bulls. The MFI has slipped below the 50% level, which is bearish. The MACD is positive and above the signal line. The slow stochastic is just below the overbought zone. The RSI is above the 50% level. All three are bullish.

The May ‘10 closing high of 5434 – about a 100 points away – will be the next hurdle that the bulls need to negotiate. On the down side, support can be expected from the intertwined 50 day and 200 day EMAs.

DAX Index Chart

The DAX index chart pattern had an expected break out from the ascending triangle pattern by first climbing above the 6200 level, and then the Jun ‘10 top of 6331 and the Apr ‘10 top of 6342. It made a new 52 week high of 6387 on Friday.

There should be an appreciable increase in volumes for such a break out to be technically valid. Unfortunately, volumes remained tepid. The highest volume of the week came on Friday, when the index dropped 74 points to close at 6260 - making a bearish reversal day (higher high, lower close) pattern.

The DAX index is gradually moving up into bullish territory. The sequence of higher tops and bottoms, and rising EMAs show that bear resistance is wearing off.

All the three oscillators – RSI, MFI and slow stochastic – are above their 50% levels. The MACD is above the signal line and rising in positive territory. Friday’s reversal day could be a warning sign that the bears may start a counter attack.

CAC 40 Index Chart

 

The CAC 40 index chart pattern joined the bull party by spending the entire week above the 200 day EMA. Friday’s selling on higher volumes could not prevent the index from closing 70 points higher on a weekly basis.

The 20 day EMA has crossed above the 50 day EMA. The MACD is above the signal line and rising in positive territory. The RSI is about to enter the overbought zone – which it has not visited in the past 5 months. The MFI is above the 50% level but made a lower top as the index made a higher one. The slow stochastic is in the overbought zone.

The RSI doesn’t like to stay in the overbought zone for long, so a correction or sideways consolidation can be expected next week.

Bottomline? The chart pattern of the European indices are doing their best to shake off the bears. Before you throw caution to the winds and start buying, please remember that all three indices are well below their 2007 tops. So, buy selectively, and in fundamentally strong, front-line companies.

Dow Jones (DJIA) Index Chart Pattern - Jul 30, '10

The Dow Jones (DJIA) index chart pattern was showing bullish inclinations observed in my analysis last week. But the lack of volumes indicated that the rally may not sustain, and I had mentioned the following:

‘The Jun ‘10 top of 10627 remains the immediate barrier that the bulls need to overcome.’

On Tue. Jul 27 ‘10, the Dow rose to 10633 intra-day but fell back to close the day at 10538. It made another attempt to clear the Jun ‘10 top on Thu. Jul 29 ‘10 by rising to 10610 but closed the day at 10467. The Dow ended the week about 40 points higher on a weekly basis – but below the 10500 level.

Technically, the Jun ‘10 top has not been overcome, but it may be a matter of just a few more days. The 6 months closing chart pattern of the Dow Jones (DJIA) index seems to suggest as much.

The 200 day EMA has remained flat for the past couple of months. The 50 day EMA came tantalisingly close to a bearish ‘death cross’ below the 200 day EMA, and has started to move up once again. The 20 day EMA has crossed above the 200 day EMA and is about to move above the 50 day EMA, confirming that the bulls are back in the saddle.

Right through the Jul ‘10 rally, the index has made a bullish pattern of higher tops and bottoms. The lacklustre volumes raise doubts about the Dow’s capability of testing the Apr ‘10 top of 11309. The fall to the Jul ‘10 low of 9596 was a 15% correction. The recent high of 10633 has been a 60.5% retracement of the 1713 points fall.

The 61.8% Fibonacci retracement level of the May-Jun ‘10 correction is at 10655. That partly explains the hesitancy of the Dow to climb convincingly above the 10600 level. The technical indicators remain bullish, but have weakened a bit.

The slow stochastic has slipped down from the overbought zone. The MACD is above the signal line and moving up in positive territory – but it is a lagging indicator. The RSI and MFI have both dropped after reaching their overbought zones, but remain above the 50% level.

Expect the bulls to make another attempt to cross the 10600 level. Bears will point out that the Jul ‘10 Dow rally has formed an ‘ascending wedge’ pattern, from which the likely break will be downwards.

The economic news is far from conducive to fuel a bull rally. The American Trucking Association’s truck tonnage index fell in Jun ‘10 – its first back-to-back monthly contraction since Mar-Apr ‘09. It confirms the beginning of a slowdown, if not a double-dip recession, as per this article.

Bottomline? The chart pattern of the Dow Jones (DJIA) index shows that the bulls are back in command. But there are bearish dark clouds on the horizon. A bit of profit booking, if the Dow attempts to climb further, may be a smart move.

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Jul 30, '10

FTSE 100 Index Chart

The FTSE 100 index chart pattern spent a few days in bullish territory, but decided things weren’t quite right with the economy and is heading back down towards bear country. What had appeared to be a bullish inverse head-and-shoulders pattern seems to have failed because of the lack of volume support.

Note the volume spike on Tuesday, Jul 27 ‘10 when the FTSE 100 crossed the 5400 level intra-day to 5411 – just below the May ‘10 top of 5435. But it closed much lower at 5366. A sign of buying exhaustion.

Wednesday’s down day on good volumes confirmed that the bears were getting things back under control. By Friday’s close, the index was back below the 5300 level at 5258, just above the 200 day EMA. It lost 1% on a weekly basis.

The slow stochastic has dipped below the overbought zone. The MACD is positive and above the signal line, but has stopped rising. The RSI has dropped after touching the overbought zone. The MFI has slipped below the 50% level.

All is not lost for the bulls yet. Note the bunching together of the three EMAs just above the 5200 level. This could lead to an up move next week. But without volume support, the rally is likely to fizzle out.

DAX Index Chart

The DAX index chart pattern is not facing as much bear trouble as the FTSE 100, but the bulls are not getting a free ride either. The index failed to make a new high and started to drop towards the 6100 level and the 20 day EMA. It lost 18 points on a weekly basis.

The slight bounce up on Friday has kept the bears at bay. The index has formed an ascending triangle pattern with the flat top at 6200 and rising bottoms. The likely break out is above the 6200 level to test the Jun ‘10 high of 6331.

The technical indicators haven’t turned bearish. The MACD is still positive and above the signal line. The RSI has moved down but remains above the 50% level. Likewise for the MFI. The slow stochastic touched the overbought zone and slipped down but the %K hasn’t crossed below the %D line.

The DAX index continues with its sideways consolidation in a bull market, as it remains well above the rising 200 day EMA.

CAC 40 Index Chart

The CAC 40 index chart pattern managed to move above the 200 day EMA three days in a row on an intra-day basis, but couldn’t quite close above it and is down in bear country once again. It closed 36 points higher on a weekly basis, keeping bullish hopes alive.

The 20 day EMA is about to cross above the 50 day EMA, and both are rising. The technical indicators are mildly bullish. The MACD is in positive territory and above the signal line. The RSI is sliding but remains above the 50% level. The MFI has dropped to the 50% level. The slow stochastic is about to drop from the overbought zone.

The CAC 40 has made a bullish pattern of higher tops and higher bottoms since the rally started in early Jul ‘10. As long as the index remains above the Jul 20 ‘10 low of 3420, bears will not regain full control.

Bottomline? The chart patterns of the European indices show that the month-long bullish rally may be petering out due to a lack of follow-up buying. Alternative bouts of bull and bear dominance is frustrating investors no end. Stay invested with tight stop-losses. Any buying should be very selective.