Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 22, ‘12

S&P 500 Index Chart

The S&P 500 index chart rode a near 100 point rally from well below its 200 day EMA to the support-resistance level of 1360 in 12 trading sessions. Such sharp rallies typically occur in bear markets – though technical confirmation of a bear market is still awaited. Note that three intra-day bottoms near the 1360 level were touched in Apr ‘12. Previous bottoms often act as resistance levels. This was the reason why readers were warned last week not to enter unless the index crossed the 1360 level.

The rally was partly on expectation of a QE3 announcement from US Fed. An extension of ‘Operation Twist’ was not considered good enough by market players. The continued weakness in Eurozone, Moody’s downgrade of several banks, weaker manufacturing data and weak jobs report in the US contributed to a crash on Thurs. Jun 21.

The index touched a lower top, and a bearish pattern of lower tops and lower bottoms remains intact. A drop below the low of 1267 touched on Jun 4 ‘12 may finally push the index back into a bear market. Technical indicators are turning bearish.

MACD has slipped into negative territory, though it is still above its signal line. RSI has dropped below its 50% level. Slow stochastic is hurtling down towards its 50% level. At the time of writing this post, the S&P 500 index is seeking support from its 200 day EMA. Bears are tightening their grip.

FTSE 100 Index Chart

Bullish technical indicators on the FTSE 100 chart had pointed to a cross above the 50 day EMA and a test of the 200 day EMA in last week’s analysis. Readers were advised to stay away, or use the rally to book profits. Some times chart patterns turn out exactly as you expect.

Technical indicators are still bullish, but showing signs of weakening. MACD is positive and above its signal line, but the histogram is falling. RSI is about to drop to its 50% level. Slow stochastic is in its overbought zone, but turning down.

Note that the FTSE 100 faced resistance from its 200 day EMA and touched a lower top than its May ‘12 top, but all three indicators touched higher tops. The combined positive divergences may prevent the index from falling below its Jun 1 low of 5230.

Bottomline? The S&P 500 index is on the verge of dropping into a bear market. The FTSE 100 index is already in a bear market. This is a time for discretion, not valour. Conserve cash and let the corrections play out.

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jun 15, ‘12

S&P 500 Index Chart

The S&P 500 index chart dropped below all three EMAs on Mon. Jun 11 ‘12, but quickly bounced up and closed the week above all three EMAs on a volume spurt. In last week’s analysis, bullish technical indicators had pointed to the possibility of a continuation of the rally, provided there was volume support.

The 20 day EMA has turned up. So has the 50 day EMA. ‘Death cross’ of the 50 day EMA below the 200 day EMA has been averted for now, which means the index is technically in a bull market down trend.

Technical indicators continue to look bullish. RSI is above its 50% level. MACD is climbing above its signal line towards its positive zone. Slow stochastic is inside its overbought zone, where it may remain for some time.

The economic recovery is quite weak. Initial claims of unemployment benefits have started inching up again. Manufactured goods orders are down. Market players are expecting an extension of ‘Operation Twist’ or even a dose of QE3 to revive the economy. If neither happens, the rally may stall.

FTSE 100 Index Chart

A bear market rally on the FTSE 100 chart is facing strong resistance from the falling 50 day EMA – a possibility mentioned in last week’s analysis.

Technical indicators are looking bullish, which means the rally may try to cross above the 50 day EMA and test the 200 day EMA. RSI has moved above its 50% level. MACD is negative, but rising above its signal line. Slow stochastic is at the edge of its overbought zone.

The ‘positive outcome’ of the elections in Greece may provide a temporary impetus to global markets. An economic catastrophe – which a break-up of the Eurozone would have caused – has been avoided. But Eurozone sovereign debt problems are yet to be solved, and economic growth remains a distant dream.

Bottomline? The S&P 500 index is technically in a bull market down trend. The rally during the past two weeks managed to keep the bears at bay. Enter on a cross above 1360 level. Bears are still ruling the FTSE 100 chart. Stay away, or use the current rally to lighten up.