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Monday, November 24, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 21, ‘14

S&P 500 Index Chart

SPX_Nov2114

The daily bar chart pattern of S&P 500 touched new intra-day (2071) and closing (2063) highs on Fri. Nov 21 ‘14, supported by a surge in volumes. The index crossed above the upper resistance line of the ‘broadening top’ pattern with a ‘gap’.

So, has the ‘broadening top’ pattern been negated? Visually, yes; but technically, not yet. Why? Any breach of a resistance (or support) line is guided by the 3% ‘whipsaw’ rule. In this case, the index needs to close above 2110 for technical validity of the breach.

All three daily technical indicators are inside their respective overbought zones, and two of them – MACD, Slow stochastic – are showing negative divergences by failing to touch new highs with the index.

There are a couple of other concerns for bulls. The index is trading well above its three rising EMAs. Also, volumes have been sliding during the sharp rally from the low of 1821, touched on Oct 15 ‘14. The index may be setting itself up for a sharp correction.

On longer term weekly chart (not shown), the index is trading well above its three weekly EMAs in a long-term bull market, and closed above the bearish ‘broadening top’ pattern. However, weekly volumes were not significantly higher to technically validate the negation of the pattern. Weekly technical indicators are in bullish zones, but showing negative divergences by failing to touch new highs with the index. Caution is advised.

FTSE 100 Index Chart

FTSE_Nov2114

The bulls are gradually regaining control over the daily bar chart pattern of FTSE 100. The index smartly crossed above its 200 day EMA and the 6700 level before pulling back to the 200 day EMA. On the last day of the week, the index bounced up on strong volumes to close above the 6750 level – its highest close in a month.

The 20 day EMA has crossed above the 50 day EMA. Both EMAs have formed bullish ‘rounding bottom’ patterns. However, both EMAs need to cross above the 200 day EMA to technically confirm a return to bull territory.

All three daily technical indicators are inside their respective overbought zones. Slow stochastic is forming a small, bearish ‘rounding top’ pattern. The index may go through a bit of correction or consolidation before resuming its up move.

On longer term weekly chart (not shown), the index has closed well above its three weekly EMAs. The 20 week EMA is about to cross above the 50 week EMA after forming a small, bullish ‘rounding bottom’ pattern. Weekly technical indicators are looking bullish. MACD is about to cross above its signal line in negative zone. RSI and Slow stochastic have crossed above their respective 50% levels. The index has overcome a strong bear attack and is returning to a long-term bull market.

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