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Monday, July 14, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Jul 11, ‘14

S&P 500 Index Chart

S&P 500_Jul1114

In last week’s analysis of the 6 months daily bar chart pattern of S&P 500, overbought technical indicators displaying negative divergences had hinted at a possible correction. The correction was a mild one – less than 2% from its lifetime peak of 1985 (touched on Jul 3).

Volumes were strong on down days, but the rising 20 day EMA provided good support. At the time of writing this post, the index has recovered most of its losses of last week. The mild correction should enable the index to rise to a new high soon.

Daily technical indicators are in bullish zones after correcting overbought conditions. MACD is below its signal line inside overbought territory, but has stopped falling. RSI and Slow stochastic dropped from their respective overbought zones, but stopped short of their 50% levels.

On longer term weekly chart (not shown), all three weekly EMAs are rising and the index is soaring above them. However, sliding volumes since the beginning of the year, and negative divergences visible on weekly technical indicators means the index is ripe for a deeper correction.

FTSE 100 Index Chart

FTSE_Jul1114

In last week’s analysis of the 6 months daily bar chart pattern of FTSE 100, the following warning note was sounded: “The index formed a ‘doji’ pattern (in candlestick parlance), which is a sign of indecision. Bears may use the opportunity to fight back.”

Bears did fight back – and how! The index dropped all the way below its 200 day EMA and the 6650 level, before pulling back to close above the 200 day EMA. The 20 day EMA has crossed below the 50 day EMA, indicating near term bearishness.

Daily technical indicators are in bearish zones, but showing some signs of turning around. MACD is falling below its signal line in negative territory. RSI is below its 50% level, but turning up. Slow stochastic is also below its 50% level, but its downward momentum is slowing.

At the time of writing this post, the index is trading above the 6750 level but facing resistance from its falling 20 day EMA.

On longer term weekly chart (not shown), the index bounced up after receiving support from its rising 50 week EMA and is trading well above its 200 week EMA in a long-term bull market. The dip provided an adding opportunity.

Bottomline? The daily bar chart patterns of S&P 500 and FTSE 100 indices underwent bull market corrections last week. S&P 500 had a mild correction that got support from its 20 day EMA. FTSE 100 dropped briefly below its 200 day EMA before recovering above it. Stay invested.

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