S&P 500 Index Chart
The daily bar chart pattern of S&P 500 has been consolidating sideways within a ‘rectangle’ pattern since Feb ‘15. Rectangles are usually continuation patterns, but can also act as reversal patterns at market tops (or bottoms).
Strong volumes on recent down-days is a sign of ‘distribution’. That increases the probability of a downward break out below the ‘rectangle’.
The index closed above all three EMAs on Mon. Aug 10. On Wed. Aug 12, the index dropped below its 200 day EMA to touch an intra-day low of 2052 but bounced back quickly with good volume support. The index gained 14 points on a weekly closing basis, but failed to close above its 20 day and 50 day EMAs.
Daily technical indicators are in neutral zones, which means the consolidation within the ‘rectangle’ may last a while longer. MACD is just inside its negative zone. RSI is marginally below its 50% level. Slow stochastic is slightly above its 50% level.
Technically, the index is in a bull market because it has closed above its rising 200 day EMA. As long as the index consolidates within the ‘rectangle’, it keeps providing good trading opportunities. Investors should wait for an eventual break out from the ‘rectangle’ to initiate any buy/sell decision.
On longer term weekly chart (not shown), the index bounced up after receiving good support from its 50 week EMA and closed above all three weekly EMAs in a long-term bull market. The 20 week EMA seems to be forming a bearish ‘rounding top’ pattern – which could lead to a deep correction if not a change of trend. Weekly technical indicators are in bullish zones but not showing any upward momentum.
FTSE 100 Index Chart
The daily bar chart pattern of FTSE 100, which has been consolidating sideways within a ‘symmetrical triangle’ pattern for the past 2 months, dropped to test support from the lower edge of the triangle. On a weekly closing basis, the index lost 2.5%.
The following comments were made in last week’s post: “A ‘symmetrical triangle’ is usually a continuation pattern. So, a downward break out from the ‘triangle’ is likely.” The index closed exactly on the lower edge of the triangle – temporarily preventing a downward break out.
Why ‘temporarily’? Because strong downward momentum visible on the three technical indicators is suggesting a downward break out and a test of the Jan ‘15 low of 6300. The index has closed below all three EMAs in bear territory.
On longer term weekly chart (not shown), the index closed well below its falling 20 week and 50 week EMAs but closed above its 200 week EMA, and technically remains in a long-term bull market. Weekly technical indicators are in bearish zones and showing downward momentum.