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Monday, July 7, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 04, ‘14

S&P 500 Index Chart

S&P 500_Jul0414

The 6 months daily bar chart pattern of S&P 500 continued to defy gravity, as it soared to touch, and close at, a new lifetime high of 1985. The psychological level of 2000 is just a hop, skip and jump away. All three EMAs are rising, and the index is trading above them in a long-term bull market.

A few dark clouds are visible on the horizon. Note the volume bars, which have been sliding as the index rose higher. Thursday’s new high was accompanied by the lowest volumes in 2014. May be the long weekend led to curtailed trading activity, but a bull market requires volume support to sustain.

Daily technical indicators have re-entered their respective overbought zones, but failed to touch new highs with the index. An index can remain overbought for long periods, but combined negative divergences on the indicators can lead to a correction at any time.

Stay invested, with a trailing stop-loss.

FTSE 100 Index Chart

FTSE_Jul0414

The 6 months daily bar chart pattern of FTSE 100 bounced up sharply from the 6700 level and climbed above its 20 day and 50 day EMAs to touch an intra-day high of 6875 on Fri. Jul 4. The index closed the week above the 6850 level in bull territory – with a weekly gain of more than 100 points.

Daily technical indicators have turned bullish. MACD has crossed above its signal line and entered positive zone. Both RSI and Slow stochastic have risen above their respective 50% levels. But volumes were moderate. The index formed a ‘doji’ pattern (in candlestick parlance), which is a sign of indecision. Bears may use the opportunity to fight back.

The index is trading above all three EMAs in a long-term bull market. But the May ‘14 top of 6895 needs to be crossed convincingly before bulls can regain full control of the chart.

Bottomline? The daily bar chart patterns of S&P 500 and FTSE 100 indices show long-term bull markets in progress. S&P 500 is rising to touch new highs regularly, but the index is looking overbought and ready for a correction. FTSE 100 is recovering from a correction after touching a new high two months back. Stay invested, but maintain trailing stop-losses.

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