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Monday, August 4, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Aug 01, ‘14

S&P 500 Index Chart

$SPX-Aug0114

The following comments were made two weeks ago: “The 6 months daily bar chart pattern of S&P 500 has been consolidating sideways within a symmetrical triangle pattern since touching a lifetime high of 1985 on Jul 3 ‘14. Triangles tend to be continuation patterns, so the eventual price break out should be upwards. However, triangles are also unreliable.”

The concluding comments in the same post were: “Falling volumes since the beginning of the year is a concern. Weekly technical indicators are overbought. A sharp correction can occur at any time.”

The index broke out upwards from the triangle on Jul 22 ‘14, but volumes were not significantly higher to validate the break out. Volumes rose during the next two days, and the index touched a new lifetime high of 1991 on Jul 24, but formed a ‘doji’ pattern (in candlestick parlance) that indicates uncertainty.

The next day’s corrective move dropped the index within the triangle, which meant that it wasn’t a pullback to be bought into, but the beginning of a corrective move. The sharp fall below the 50 day EMA on Thu. Jul 31 was accompanied by the highest volumes in more than a month. The index closed above the support level of 1920 for the week.

Daily technical indicators are looking bearish. MACD has dropped into negative territory. RSI is just above its oversold zone. Slow stochastic has entered its oversold zone. Some more correction can’t be ruled out. Expect stronger support from the 1850-1900 zone.

On longer term weekly chart (not shown), the index has bounced up a bit after receiving support from its 20 week EMA, and is trading above all three weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions, but remain in bullish zones. However, all three are showing negative divergences by failing to touch new highs with the index. The correction may not be over yet.

FTSE 100 Index Chart

FTSE_Aug0114

The following comments appeared two weeks back in a post on the 6 months daily bar chart pattern of FTSE 100: “The index needs to move convincingly above its Jul ‘14 top of 6875 to break the bearish pattern of ‘lower tops and lower bottoms’…Expect bears to dominate in the near term.”

The index rallied above its 20 day and 50 day EMAs into bull territory for a few days, but failed to get close to the July ‘14 top of 6875 – touching a lower top of 6834 on Jul 29. Bears took the opportunity to get back into the act. The index dropped and closed below its 200 day EMA for the week – continuing a bearish pattern of ‘lower tops and lower bottoms’.

Technical indicators are looking bearish, but not oversold. MACD has dropped into negative territory below its signal line. RSI has slipped below its 50% level. Slow stochastic seems ready to do likewise. A drop to 6500 is possible.

On longer term weekly chart (not shown), the index has bounced up after receiving support from its 50 week EMA and is trading well above its rising 200 week EMA in a long-term bull market. Weekly technical indicators are beginning to look bearish, and showing downward momentum. Some more correction is likely.

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