Amazon deals

Saturday, August 2, 2014

Stock Index Chart Patterns: CAC 40, DAX, RTS – Aug 01, ‘14

CAC 40 Index Chart (France)

CAC_Aug0114

The 6 months daily bar chart pattern of CAC 40 tried desperately to hang on to its 200 day EMA during the first 3 days of the week, but faced resistance from its falling 20 day EMA and collapsed below its long-term moving average, and the support level of 4275.

This crash into bear territory should not have come as a big surprise, as the following warning note was sounded last week: “The index faced resistance from its falling 50 day EMA and dropped down to test support from its 200 day EMA. Will the support hold? Seems unlikely from the bearish daily technical indicators.”

So, did the stop-loss at 4275 get triggered? Technically, the answer is: No. The 3% ‘whipsaw’ rule requires a close 3% below 4275, i.e. at about 4147. On Fri. Aug 1, the index touched an intra-day low of 4182 and closed above the 4200 level. Technical nitpicking, you think?

Have a look at the technical indicators. All three are in bearish zones and two – MACD, Slow stochastic – are inside their oversold zones. However, all three touched higher bottoms, while the index dropped lower. The positive divergences can cause an upward bounce.

The likely bounce can be a pullback towards the 4275 level, in which case, it would be a selling opportunity. Only a convincing move above 4415 (top touched on Jul 24) can change the bearish pattern of lower tops and lower bottoms.

On longer term weekly chart (not shown), the index has dropped and closed below its 50 week EMA, but is trading above its rising 200 week EMA. Weekly technical indicators are in bearish zones. A breach of the 4100 level can lead to a test of support from the 200 week EMA (currently at 3934).

DAX Index Chart (Germany)

DAX_Aug0114

The 6 months daily bar chart pattern of DAX convincingly breached the support level of 9600, and dropped below its 200 day EMA into the support zone between 9000-9250. The index closed the week just above the 9200 level.

The possibility was mentioned in earlier posts. The following comments were made last week: “Bulls did manage to defend the 9600 level for the week, but how much longer will they be able to do so? All three daily technical indicators are in bearish zones, and moving down. However, they haven’t quite reached their respective oversold zones. That means further down side is likely.”

The stop-loss at 9600 got triggered as the index closed more than 100 points below the 3% ‘whipsaw’ level of 9312. Can the index fall even more? The answer is: Yes. All three technical indicators have dropped inside their oversold zones. But negative divergences are visible as all three have dropped to their earlier low touched in Mar ‘14, whereas the index has touched a higher bottom.

A pullback towards the 200 day EMA is a possibility. Bears may use the opportunity to press sales. On longer term weekly chart (not shown), the index closed below its 50 week EMA for the first time since Apr ‘13, but is trading well above its rising 200 week EMA. A breach of the 9000 level can drop the index to the next support zone between 8000-8500.

RTS Index Chart (Russia)

RTSI_Aug0114

The 6 months daily bar chart pattern of RTSI fell sharply to the 1200 level, pulled back to the 1245 level where it had closed the previous week, but bear selling pushed it down to the 1200 level once again.

The following remarks were made last week: “All three daily technical indicators are in bearish zones, and moving down. All three EMAs have converged together. A sharp move usually follows.” Since the index was already in a bear market, the sharp move was expected to be downwards.

Of the three indicators, Slow stochastic is inside its oversold zone. MACD and RSI have not yet entered their respective oversold zones. That means, further downside can’t be ruled out.

On longer term weekly chart (not shown), the index is trading below its three weekly EMAs in a long-term bear market. Weekly technical indicators are in bearish zones, but not looking oversold. A deeper correction is likely.

Subhankar blogs at investmentsfordummieslikeme.blogspot.com

You can reach him at mobugobu@yahoo.com, and follow him on twitter @mobugobu

No comments: