S&P 500 and FTSE 100 charts (Sep 21, 2018): bulls shove aside bear resistance

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 bounced up after receiving support from its 20 day SMA (blue dotted line) and rose to penetrate the upper Bollinger Band on Thu. Sep 20. 

On Fri., the index touched a new high of 2941 with a huge volume surge, but formed a small 'reversal day' bar (higher high, lower close). That can trigger a corrective move towards the lower Bollinger Band.

Daily technical indicators are bullish and looking overbought. MACD has crossed above its signal line and is poised to re-enter overbought zone. RSI is facing resistance from the edge of its overbought zone. Slow stochastic is inside its overbought zone. All three indicators are showing negative divergences by touching lower tops.

On longer term weekly chart (not shown), the index closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought. MACD is rising above its signal line inside its overbought zone. RSI is about to enter its overbought zone. Slow stochastic is moving sideways inside its overbought zone. 

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 shows a spirited fightback by bulls. The index formed a small 'rounding bottom' pattern and climbed above its 20 day EMA. On Fri. Sep 21, the index touched a high of 7495 but closed 5 points lower as it faced strong resistances from the merged 50 day and 200 day EMAs.

The index gained 186 points (2.5%) on a weekly closing basis, and is on the verge of re-entering bull territory above its three EMAs. The 'death cross' of the 50 day EMA below the 200 day EMA has been averted for now.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in bearish zone. RSI has bounced up above its 50% level after receiving support from the edge of its oversold zone. Stochastic has risen sharply to enter its overbought zone.

(At the time of writing this post, the index is trading at 7475 - as bears are desperately trying to prevent a move above the 50 day and 200 day EMAs.)

On longer term weekly chart (not shown), the index closed just below its 20 week EMA but above its 50 week and 200 week EMAs in a long-term bull market. Weekly MACD is below its falling signal line in bearish zone. RSI and Stochastic have moved up towards their respective 50% levels.

Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Oct 28 ‘11

The apparent ‘resolution’ of the Eurozone debt crisis seems to have acted like a tonic for the Asian stock indices, which soared past expected resistance levels, backed by strong volumes. Two weeks back, I had made the following comment:

‘The first signal of a trend reversal will be the crossing of the 20 day EMA above the 50 day EMA. So keep a watch on the short-term and medium term moving averages.’

The 20 day EMAs are still below the 50 day EMAs, but things may change quickly if the general euphoria in global markets continue unabated next week.

Hang Seng Index Chart

The Hang Seng chart has filled the gap between 18300 and 18700 quite comfortably, and rose past its 20 day and 50 day EMAs. The larger gap between 21018 and 21726, and the falling 200 day EMA are likely to provide stronger resistances to the rally.

The technical indicators are looking overbought, which may lead to a correction or consolidation. The MACD has risen sharply above its signal line into positive territory. The ROC is also positive and above its 10 day MA, but reached a lower top as the index rose higher. The RSI and the slow stochastic are both inside their overbought zones.

A correction down to the 50 day EMA may help the index to gather more energy to climb past the 200 day EMA. Till then, it technically remains in a bear market.

Singapore Straits Times Index Chart

Like the Hang Seng index, the Straits Times index crossed above its 20 day and 50 day EMAs backed by strong volumes, and has come close to testing resistance from its falling 200 day EMA. Though technically still in a bear market, the strong upward momentum can reverse the down trend quickly.

The technical indicators are looking overbought, which could lead to a pause in the rally or even a correction. The two gaps on the chart formed on Aug 5 and Aug 8 ‘11, and the falling 200 day EMA are probable resistances to a further up move.

Malaysia KLCI Index Chart

Two weeks back, the overbought technical indicators pointed to a correction. The correction was swift, and dropped the KLCI almost 100 points (about 6.5%) from 1465 to 1371 in the space of 5 trading sessions. The recovery was sharp, and in today’s trade the index crossed above the 200 day EMA intra-day, before closing exactly on the long-term moving average.

The MACD is positive and rising above its signal line. Both the RSI and the slow stochastic are in their overbought zones, but both failed to reach new highs with the index. The ROC is positive but has crossed below its 10 day MA. A correction down to the 50 day EMA won’t be a surprise.

Bottomline? The three Asian indices are in the midst of sharp recovery rallies that are hinting at possible trend reversals. The overbought technical indicators are pointing to a pause or  brief corrections next week. The feel-good factor of the Eurozone debt resolution may wane a bit over the weekend after the fine-print is closely analysed. The worst is probably over for the Asian indices, but it may take a while for bullish sentiment to return.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jul 08, ‘11

S&P 500 Index Chart

In last week’s analysis of the S&P 500 index chart pattern, the widening Bollinger Bands had hinted at the possibility of volatile trading. The technical indicators were beginning to look overbought – a harbinger of a correction.

In a trading week shortened by the July 4 holiday, the S&P 500 displayed volatility and the start of a correction. After two days of sideways move, a spurt on Thursday, July 7 ‘11, probably caused by an improvement in employment data, took the index to a close above the 1350 level after almost 2 months.

In between, the index made a rounding-bottom bullish pattern that received good support from the rising 200 day EMA. (The rounding-bottom is also visible in the 20 day EMA and the MACD.)

The down-trend line (not drawn on chart) connecting the May 2 ‘11 and Jun 1 ‘11 tops, was breached on Jul 1 ‘11. But there was no significant increase in volume – in fact volumes began sliding before the breach. That makes the breach technically suspect.

The technical indicators are looking overbought. The slow stochastic is in its overbought zone, and seems ready to turn down. The MACD is positive, but has risen too fast above the signal line. The RSI is at the edge of its overbought zone. A pullback to the 50 day EMA (and the top of the down-trend line) at 1310 is a possibility.

FTSE 100 Index Chart

The FTSE 100 index chart treaded water around the 6000 level for three days before a sharp up move on Thu. July 7 ‘11, followed by a ‘reversal day’ pattern (higher high, lower close) on Fri. July 8 ‘11. The index closed flat on a weekly basis – just below the psychological 6000 level.

The index is above all three EMAs, which means a bull market technically. The technical indicators are reacting from overbought conditions. A fall to the 50 day EMA, or even the 200 day EMA, will not be surprising.

The slow stochastic is about to drop from its overbought zone. The MACD is positive, and above its signal line but turning down. The RSI is at the edge of its overbought zone – not a place it visits often.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices are showing signs of correcting a sharp rally. The bull markets are still intact, but the economies are weakening. Both indices are moving in broad sideways channels for 6 months, giving trading opportunities.

BSE Sensex and S&P CNX 500 Index Chart Patterns – Jul 08, ‘11

In last week’s analysis of the chart patterns of the BSE Sensex and NSE Nifty 50 indices, I had made the following comments:

‘If (the FIIs) continue their buying spree, the down-trend line may get breached next week. But if it isn’t a high-volume break out, the index may pull back into the descending triangle.’

As is apparent from the closing chart pattern of the BSE Sensex (and also of the Nifty 50 – though not shown here), both indices behaved exactly as expected, as the FIIs continued their net buying through the week.

BSE Sensex Index Chart

The blue down-trend line was breached on Thursday, July 7 ‘11. But the breach wasn’t technically valid, though the Sensex managed to close above the down-trend line. Why?

Firstly, because all breaches of supports and resistances should follow the 3% ‘whipsaw’ lee-way rule. In other words, if an index or stock remains within 3% of a breached support or resistance level, then more often than not, there is a ‘whipsaw’ (i.e. a sudden change of direction) – as marked by the blue circle on the Sensex chart).

Also, though not shown in the chart, volumes were not significantly higher during the break out above the down-trend line. That is another technical ‘rule’ for valid upward break outs. (Note that the ‘rule’ doesn’t apply for downward breaks; i.e. volumes need not be higher – though they some times are.)

Though the index is back inside the large descending triangle, it is above all the three EMAs. The EMAs may support any down moves. The technical indicators are suggesting that any such support may be temporary.

The MACD is in positive territory, and rising above its signal line. The ROC is also positive, but has crossed below its 10 day MA. The RSI has entered overbought territory, where it doesn’t stay very long. The slow stochastic is in its overbought zone, but made a lower high as the index rose higher to breach the down-trend line – a negative divergence.

In spite of the FII buying spree, the bears managed to stall the rally.

S&P CNX 500 Index Chart

For a different perspective, I have included the one year closing chart pattern of the broader S&P CNX 500 index instead of the Nifty 50. The Nifty 50 chart is very similar to that of the Sensex. But the broader index has a couple of very interesting differences – both of which have bullish implications.

First, the 200 day EMA and the down-trend line were breached ahead of the Nifty a week ago. The long-term support-resistance level of 4550 was also breached, and is now providing support. However, the CNX 500 didn’t quite get past the 3% ‘whipsaw’ lee-way.

The June ‘11 low was higher - by almost 100 points - than the Feb ‘11 low. That makes the large triangle on the CNX 500 a ‘pennant’ rather than bearish descending triangles on the Nifty and Sensex charts. The upward break out may turn out to be valid – but possibly after a pullback to the down-trend line.

Bottomline? The chart patterns of the BSE Sensex and the S&P CNX 500 indices show that the bears are in no mood to give up their 8 months long strangle-hold on the Indian stock market. Thanks to a surge in FII (round-tripping ‘hot’ money?) inflows, the bulls have regained some lost ground. Be very stock specific in your buying, and set tight stop-losses. Things can get worse in a hurry if Q1 results belie expectations. Better to watch the fight from the sidelines. 

Stock Index Chart Patterns – Hang Seng, Singapore Straits Times, Malaysia KLCI – Jul 08 ‘11

The wheat is getting separated from the chaff in the chart patterns of the Asian stock indices. The Hang Seng index is in real danger of falling into a bear market. The Straits Times index has averted a bear market so far, but is still struggling in a down trend. The KLCI index has broken above its down trend line, as was expected in last month’s post.

Hang Seng Index Chart

The Hang Seng index seems to be in trouble. The index not only dropped below the 200 day EMA last month, but broke below the 8 months long downward-sloping channel. The subsequent sharp bounce re-entered the channel and climbed up to the 200 day EMA, where it is facing resistance.

The bad news for the bulls is that the 50 day EMA has slipped below the 200 day EMA – the dreaded ‘death cross’ that signals a bear market. The technical indicators are looking bullish and showing positive divergences. The MACD is negative, but has risen above the signal line. The ROC is positive and above its 10 day MA. RSI and slow stochastic have entered their overbought zones. ROC, RSI and slow stochastic have reached higher tops, while the index has reached a lower one.

The Hang Seng may make an effort to cross the 200 day EMA next week, which can be an opportunity to book some profits. The drop below the channel is not a good sign for bulls.

Singapore Straits Times Index Chart

A deeper correction and a test of the Mar ‘11 low was expected in last month’s analysis. But the Straits Times index recovered quickly to climb above all three EMAs, before encountering strong resistance form the blue down trend line.

Technical indicators are looking bullish and all four are showing positive divergences – reaching higher tops while the index reached a lower one. Today’s volume uptick is a sign that the index may break above the down trend line next week. Buy on the break out, and add more on any pullback.

Malaysia KLCI Index Chart

The KLCI index tried for several days in June ‘11 before breaking above the blue down trend line. It has reached a new all-time high, but there are some dark clouds on the horizon.

Volumes were not all that great during the break out and the subsequent climb to a new high. A bull market without volume support is suspect. Also note the negative divergences in all four technical indicators, which reached flat or lower tops even as the index rose higher (marked by blue arrows).

A correction down to the blue down-trend line can be expected. That may be a buying opportunity.

Bottomline? The bears are still active in the chart patterns of the Hang Seng and Straits Times indices. The bulls have regained full control of the KLCI index. Buying is not advised till the down-trend lines in the Hang Seng and Straits Times indices are convincingly breached.

Stock Chart Pattern - Havell's India (An Update)

In the previous update to the analysis of the stock chart pattern of Havell’s India, written a year ago, I had recommended existing investors to hold or book partial profits, and new entrants to wait for a correction. The stock had closed at 661.30 – less than 15% below its Jan ‘08 high of 750; it is better to be cautious near a previous top.

The stock went on to touch a new all-time intra-day high of 892 (or, 446 after bonus adjustment) in Oct ‘10, just prior to the issue of 1:1 bonus shares (marked by the blue bell). Was my recommendation ill-timed? It would appear so – unless you take a look at the one year closing chart pattern of Havell’s India:

Note that the prices have been adjusted following the bonus issue in Oct ‘10. All price levels in the previous update should be divided by 2 for comparison. Existing holders – even those who may have booked partial profits – enjoyed the rise from 330.65 (adjusted for 1:1 bonus) in July ‘10 to 437.60 in Oct ‘10.

The MACD and ROC made lower tops, and the RSI made a flat top as the stock rose to its peak in Oct ‘10. The negative divergences gave early warning of a correction, which got exacerbated after the bonus issue.

Why? Often, investors resort to selling the stocks that they bought at high prices prior to the bonus issue. As the stock went ex-bonus (i.e. halved in value), investors sold at lower prices to book short-term losses to avail tax benefits. Many investors also sell after the bonus shares are credited to their demat accounts, to reduce their holding costs.

Whatever the reasons, the stock fell steeply to close at 293.70 on Feb 10 ‘11 – a fall of 34% from the peak, underperforming the Sensex correction of 18%. The 50 day EMA hardly went below the 200 day EMA – despite the steep fall below the long-term moving average.

Take a look at what happened next. Not only did the correction provide a better entry point to new investors, a ‘V’ shaped recovery took the stock to a new all-time closing high of 441 – recovering all its losses, and outperforming the Sensex.

The stock touched a new all-time intra-day high of 451 on Jun 15 ‘11 – a day after it closed at 441 – but formed a ‘reversal day’ pattern that started another sharp correction below the 50 day EMA.

I have drawn three ‘fan lines’ (numbered 1, 2 and 3) to ‘capture’ the rally and the subsequent correction. So far, the third fan line has provided support, keeping the rally alive. However, a break below may signal a deeper correction. A fall below 294 will confirm a bearish double-top.

The technical indicators are recovering from oversold conditions. The MACD is negative and below its signal line, but is turning around. The ROC is also negative, but has crossed above its 10 day MA. Both the RSI and the slow stochastic are emerging from their oversold zones. Volumes have picked up over the past two days. An upward bounce is in progress.

The company is fundamentally strong, with good cash flows and manageable debt. The management is investor friendly – paying regular dividends and three 1:1 bonus issues in the past 6 years. The Sylvania acquisition should start bearing fruit. Margins are under a bit of pressure. A play on the domestic consumption story and a great stock for a small investor’s portfolio.

Bottomline? The stock chart pattern of Havell’s India is in a bull market. One can buy the dips, but with a strict stop-loss. Watch the third fan line closely; a break below can turn into a deeper correction.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jul 01, ‘11

S&P 500 Index Chart

After hovering for two week’s near the 200 day EMA, the S&P 500 decided it didn’t want to drop into a bear market after all. The strong 5.6% weekly gain – the best weekly performance in two years by the index – sent the bears scurrying for cover.

What caused the sudden rally? It may seem that the financial bail-out package for Greece, forcing their government to adopt stringent austerity measures in the face of riots and protests by Greek citizens, caused world-wide relief that led to euphoria in the stock markets. The more likely reason was that the bull’s used the Greece news as an excuse to trap the bears.

The combined effect of buying and short-covering took the index well above its 50 day EMA and beyond the upper Bollinger Band. The bands are widening, which means trading can turn volatile. An entire month’s losses have been recovered in a week.

The technical indicators have turned bullish to the point of being overbought. The MACD has risen away from its signal line into positive territory. The slow stochastic is deep inside its overbought zone. The RSI is rising quickly towards its overbought zone.

There hasn’t been any great change in the US economy to warrant such a sharp rise. The Weekly Leading Index (WLI) of the Economic Cycle Research Institute (ECRI) dropped for the 10th straight week to 2.0 from the previous week’s 2.9. Initial unemployment claims declined by 1000 to 428000 – the 12th consecutive week above the psychological 400,000 mark.

FTSE 100 Index Chart

The FTSE 100 managed to hold on to the support level of 5650, and embarked on a swift rally – ostensibly due to all-around relief that Greece’s sovereign default was temporarily averted. The index sailed above its 200 day and 50 day EMAs, pierced the upper Bollinger Band, and regained all the ground it had lost during the month of June ‘11.

The technical indicators are looking bullish, which means the rally is likely to continue this week. The MACD has crossed above its signal line, and is about to enter positive territory. The slow stochastic has entered its overbought zone. The RSI has moved above its 50% level.

UK’s manufacturing sector grew at its slowest pace in two years. The good news is that it was still a growth. Whether the growth will sustain in the domestic market or not is debatable, as austerity measures are expected to take a toll. However, exports are picking up, which is a silver lining.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices recovered spectacularly last week. Global economic growth is slowing down, so it was more of a relief rally that the Greek crisis has been averted for now. Conservative investors can take some profits off the table. The more adventurous can use trailing stop-losses to ride the rally.

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jul 01, ‘11

All good things must come to an end, and the sharp bull rallies in the chart patterns of the BSE Sensex and NSE Nifty 50 indices appear to have hit strong road-blocks.

Last week, I had mentioned that even if the 50 day and 200 day EMAs were breached, the 8 months long down-trend lines would prove to be tougher hurdles. Both indices climbed past their 50 day and 200 day EMAs with ease, but stopped short of the down-trend lines.

BSE Sensex Index Chart

For a different perspective, let us take a look at the weekly bar chart pattern of the Sensex. A couple of interesting patterns are visible – and I will provide bullish and bearish views.

The Sensex formed a ‘diamond’ reversal pattern between Sep ‘10 and Dec ‘10, which ended the bull rally from Mar ‘09, and started the corrective phase from the Nov ‘10 peak. A ‘diamond’ pattern has measuring implications: the height of the diamond should be less than or equal to the subsequent fall below the diamond.

In the Sensex chart, the height of the ‘diamond’ is about 2400 points. After breaking down below the ‘diamond’, the Sensex dropped almost 2900 points to the low of Feb ‘11. So, the downward target of the ‘diamond’ has been met. The subsequent up move was halted by the down-trend line (blue dotted) that became an extension of the diamond.

The next leg of the correction found support at the level of the Feb ‘11 low of 17300, followed by last week’ rally. Note that the Sensex has formed a large descending triangle pattern which has bearish implications – a breakdown below the 17300 level is a distinct possibility.

All isn’t lost for the bulls - yet. In spite of the prolonged correction, the 20 week EMA has remained above the 50 week EMA (equivalent to the 200 day EMA on daily charts). Technically, we are still not in a full-fledged bear market.

The other bullish news is that the FIIs have turned net buyers again. If they continue their buying spree, the down-trend line may get breached next week. But if it isn’t a high-volume break out, the index may pull back into the descending triangle.

The technical indicators look weak, but are showing some signs of recovery. The MACD is negative and below its signal line, but trying to turn up. Likewise, the ROC is negative and below its 10 week MA but trying to rise. The RSI is straddling its 50% level. The slow stochastic has bounced up from the edge of its oversold zone, but is below the 50% level.

Nifty 50 Index Chart

 

The up move in the Nifty daily bar chart ended with Friday’s ‘reversal day’ (higher high, lower close) pattern – marked by the light blue oval. Since it is within handshaking distance of the blue down-trend line, chances are that the Nifty will reverse directions next week.

The negative divergence in the RSI, which reached a lower top while the Nifty touched a higher one (marked by blue arrows), is also signalling an end to the brief rally. The MACD, ROC and slow stochastic are looking bullish. Note that the ROC has climbed well above its 10 day MA – a correction or consolidation may follow.

The macro situation is getting a little worrisome. The price hike of diesel, LPG and kerosene will add to the inflation problem, though duty cuts will soften the blow. Passenger car sales have slowed down. Q1 results are likely to be below par. However, any positive surprises can lead to fresh buying.

The Indian economy is still growing – perhaps better than most countries except China. There is scepticism all around – particularly among retail investors. The monsoon rains are gradually covering the entire country. Not a time to be despondent. Being cautiously optimistic may be better for your investment health.

Bottomline? The BSE Sensex and NSE Nifty 50 chart patterns have completed brief relief rallies that failed to breach their down-trend lines. The scales are tipping towards a break below the descending triangles. Expect some consolidation before that can happen. Be careful, not fearful.

NSE Nifty 50 – a quick mid-week update

Some readers have written to me over the past couple of days, asking whether the worst is over for the Nifty and is it a time to buy. It is better to have a long-term view, and not be too bothered every time the index rises or drops by a couple of percentage points.

The ‘buy low – sell high’ theory is not just that. It works practically as well. How does one know when the index is low enough to buy and high enough to sell? Just look at historical P/E values of the Nifty, and check the range within which it trades most often. You will get the answer.

However, since the question has been raised by a few, there may be others who are thinking along the same lines. So, here is a quick update of the 1 year Nifty bar chart pattern:

 

Note the following points, and their implications:

1. Volumes have been strong during the past 5 days rally – bullish

2. The Nifty has crossed above the 200 day EMA after 2 months – bullish

3. The index touched a marginally higher top for this month – bullish

4. The ROC and the RSI reached lower tops while the Nifty reached a slightly higher top – bearish (negative divergences)

5. Last, but definitely not the least: the blue downtrend line has not been crossed yet – bearish

As long as the downtrend line is not breached, the 8 months long corrective phase remains in place. This up move gives an excellent opportunity to book partial profits.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jun 24, ‘11

S&P 500 Index Chart

The S&P 500 index chart spent another week of gyrations without making much headway. It rose a bit higher only to face resistance from the 1300 level, and closed marginally lower. Bulls may feel relieved that the index closed the entire week above the 200 day EMA.

Bears will point out that a higher high and a lower close means it was a bearish ‘reversal week’. The index has spent 18 straight trading sessions below the falling 50 day EMA. The down trend that began from the May 2 ‘11 top of 1371 remains firmly in place. The bearish pattern of lower tops and lower bottoms continues.

The technical indicators are weakening after showing some signs of life. The MACD is negative and about to cross below the signal line. The slow stochastic rose sharply to the 60% level, but the %K line has dropped below the %D line and the 50% level. The RSI is moving sideways, and is also below the 50% level. The bears are getting ready to take control.

There isn’t much good news on the economic front. The GDP growth has been downgraded to 2.7% from the earlier estimate of 2.9%. Unemployment claims increased by 9000 to 429000 – the 11th straight week above the 400000 mark. Sales of new and existing homes dipped in May ‘11. Oil prices have fallen – but that isn’t necessarily good news for the stock market.

FTSE 100 Index Chart

The FTSE 100 made a futile effort at an up move that was quickly stalled by the bears. The long-term moving average has now turned down and the ‘death cross’ of the rapidly sliding 50 day EMA below the 200 day EMA appears imminent. The index spent the second week in a row below the long-term moving average.

The technical indicators are bearish and not holding out much cheer for the bulls. The MACD is below its signal line, and both are falling in negative territory. The slow stochastic and RSI are both below their 50% levels. A test of the Mar ‘11 low of 5592 is on the cards.

Greece’s bailout is like using chewing gum to plug holes in a leaking boat – postponing the inevitable. The severe repercussions to European and UK banking systems have not been fully revealed yet.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices may face deeper corrections. If you are still invested, keep strict stop-losses at 1260 for the S&P 500 and 5650 for the FTSE 100. Things may get worse before they can get better.

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Jun 24, ‘11

In last week’s analysis of the BSE Sensex and Nifty 50 index chart patterns, my concluding observations were:

‘The BSE Sensex and NSE Nifty 50 chart patterns are poised near important support levels. Things aren't looking good for the bulls. Both indices can lose another 2-3% from current levels easily.’

Both indices dropped by 3% to test their Feb ‘11 lows. Some times technical analysis works like magic. The charts almost ‘talk’ to you. Wish they did that more often – or may be they do so all the time, but my listening faculty is not always fine-tuned.

BSE Sensex Index Chart

The Sensex bounced up after dropping to an intra-day low of 17314 on Mon. June 20 ‘11. After consolidating sideways for the next three days, the index jumped up on Fri. Jun 24 ‘11 on a combination of strong FII buying and short covering. The falling 20 day EMA was breached, but the 50 day EMA provided resistance.

Is the worst over for the bulls? Not yet. Even if the 50 day EMA is breached next week, the 200 day EMA may prove to be a tougher hurdle. The strongest resistance is likely to be provided by the blue downtrend line that has been ruling the Sensex since the Nov ‘10 top.

The technical indicators have turned positive from being very bearish. But they haven’t quite turned bullish. The MACD has turned up, but remains below its signal line in negative territory. The ROC has crossed above its 10 day MA, and just about touching the ‘0’ line. The RSI has turned around quickly from its oversold zone, but is below the 50% level. Likewise for the slow stochastic. A deeper correction below the 17300 level has been averted – for the time being.

Nifty 50 Index Chart

A new lower support level for the Nifty has been drawn at the Feb ‘11 low of 5178, since the earlier support level of 5345 was breached again (though the Nifty whipsawed back within the 3% leeway). Chart patterns are not static. As new patterns develop, the supports and resistance levels need to be adjusted – even though an earlier support level wasn’t technically broken.

This may appear confusing to inexperienced observers, but is a common practice with more experienced analysts. By the way, the new support level was not redrawn on the basis of one previous support point in Feb ‘11. The level of 5178 had earlier acted as strong resistance during Oct ‘09 and during most of Dec ‘09.

Before bulls get too excited about rising volumes on the last two days of the week, it should be pointed out that the highest volumes occurred on Monday’s down day. The other point in favour of the bears is the large descending triangle pattern being formed by the blue down trend line and the 5178 level. The likely break is below the 5178 level.

With food inflation refusing to go down, another 25 bps interest rate hike is likely in July. The monsoon is expected to be slightly below normal. Though exports have grown, the slow turnaround of the economies in Europe and USA are causing concern. Q1 results next month may be below par.

Bottomline? The BSE Sensex and NSE Nifty 50 chart patterns have averted deeper corrections by bouncing up from long-term support levels. But it is a time to be cautious. Both indices are technically in bear markets – which means the sensible thing to do will be to sell on rises. If you want to be a contrarian, pick your stocks very carefully.

Stock Index Chart Patterns – S&P 500 and FTSE 100 – Jun 17, ‘11

S&P 500 Index Chart 

Last week, I had speculated whether the S&P 500 chart will be able to bounce up from its 200 day EMA or not. The index dropped below the 200 day EMA on Wednesday and Thursday (Jun 15, 16 '11), but managed to close above the long-term moving average on both days. By Friday, the S&P 500 chart bounced up a bit to close absolutely flat on a weekly basis.

The good news is that the index halted its six weeks long downward slide. The bad news is that the halt may be temporary. As the Grateful Dead sang many years ago, there is 'trouble ahead, trouble behind, and you know that notion just crossed my mind'.

The technical indicators are bearish. The MACD has stopped falling, but remains negative and below its falling signal line. The slow stochastic's feeble effort to emerge from its oversold zone failed miserably. The RSI's up move stalled at the 40% level and it is heading down towards its oversold zone. Looks like the correction isn't over yet.

Economic indicators weren't great either. The index of small business optimism declined for the third month in a row. The Conference Board's Leading Economic Index rose by less than 1% after declining in April '11. The Weekly Leading Index growth indicator of the Economic Cycle Research Institute declined for the eighth straight week. The University of Michigan Consumer Sentiment Index was down to 71.8 from 74.3 in May '11.

FTSE 100 Index Chart 

The bears are beginning to take control of the FTSE 100 index chart. The Mar '11 low of 5592 was not tested, but the index closed the entire week below the 200 day EMA. In the process, the lower Bollinger Band was pierced. An up move may follow.

The technical indicators are bearish. The MACD is below its signal line and sliding deeper into negative territory. The slow stochastic is well inside its oversold zone. The RSI is falling towards its oversold zone. The FTSE 100 chart has formed a bearish rounding-top pattern - pointing to a deeper correction.

The UK economy remains in the doldrums, as GDP growth has remained flat in the past six months. Unemployment has decreased but consumer sentiment remains low. Retail sales declined by 1.4%. Greece's bailout is casting a pall of gloom over European indices, and the FTSE 100 is suffering from its ill effects.

Bottomline? The chart patterns of S&P 500 and FTSE 100 indices show that this is likely to be a summer of discontent. Sit back and let the corrections play out. Lower entry points are likely to be available in the not-too-distant future.