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Monday, December 1, 2014

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Nov 28, ‘14

S&P 500 Index Chart

SPX_Nov2814

The daily bar chart pattern of S&P 500 touched a new intra-day high of 2076 on Fri. Nov 28, but formed a ‘reversal day’ pattern (higher high, lower close). Thanksgiving week was characterised by sliding volumes during a sideways consolidation with a slight upward bias.

Based on the trading pattern of the previous 5 days, the bearish ‘broadening top’ pattern has been slightly redrawn because it appears to make more sense technically. All three EMAs are rising and the index is trading above them in a long-term bull market.

All three technical indicators are inside their respective overbought zones, but showing negative divergences by failing to touch new highs with the index. As mentioned in last week’s post, the index may be setting itself up for a sharp correction.

On longer term weekly chart (not shown), the index touched new intra-week and closing highs, and is trading well above its three weekly EMAs in a long-term bull market. Weekly technical indicators are looking overbought, and showing negative divergences by failing to touch new highs with the index. Time to take some profits home.

FTSE 100 Index Chart

FTSE_Nov2814

The daily bar chart pattern of FTSE 100 underwent a week of sideways consolidation with a slight downward bias after a month-long rally. On Fri. Nov 28, the index tested support from its 200 day EMA, but bounced up to close above the 6700 level.

The index spent the entire week above the 6700 level and its 200 day EMA in bull territory, but technically, a return to a bull market has not been confirmed yet. Why? Because the ‘golden cross’ of the 50 day EMA above the 200 day EMA is still awaited.

Daily technical indicators have started correcting overbought conditions, and two of them – MACD, Slow stochastic – have formed bearish ‘rounding top’ patterns inside their respective overbought zones. At the time of writing this post, the index has again dropped to test support from its 200 day EMA.

On longer term weekly chart (not shown), the index tested support from its entangled 20 week and 50 week EMAs, and managed to close above its three weekly EMAs. Weekly technical indicators are still looking bullish, but their upward momentum is slowing down. MACD has crossed above its signal line in negative zone. RSI is falling back towards its 50% level. Slow stochastic is rising towards its overbought zone. The index has overcome a strong bear attack and has returned to a long-term bull market, but is facing some technical headwinds in the near term.

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