Monday, February 15, 2016

Stock Index Chart Patterns: S&P 500 and FTSE 100 – Feb 12, 2016

S&P 500 index chart


The following comments appeared in last week's post on the daily bar chart pattern of S&P 500: "All three EMAs are falling, and the index is trading below them in bear territory. The Jan 20 low of 1812 is likely to be tested."

The Jan 20 low of 1812 was tested on Thur. Feb 11 - as the index touched a new 52 week intra-day low of 1810 - but technically not breached because of the 3% 'whipsaw' rule.

On Fri. Feb 12, the index bounced up to close at 1865 - losing just 15 points on a weekly closing basis. Asian markets are in a bull grip at the time of writing this post. If S&P 500 continues to rally with good volume support and crosses above its Feb 1 top of 1947, a 'double bottom' reversal pattern will get technically confirmed.

All three daily technical indicators have corrected oversold conditions, and are showing positive divergences by touching higher bottoms while the index dropped slightly lower.

Is the correction over? It may be too early to call. But a sharp rally is quite possible.

On longer term weekly chart (not shown), the index bounced up after testing support from its 200 week EMA for the second time in 4 weeks, but closed well below its falling 20 week and 50 week EMAs. The long-term bull market is still intact, but may not remain so for long. Weekly technical indicators are in bearish zones and showing downward momentum.

FTSE 100 index chart


The following comments appeared in last week's post on the daily bar chart pattern of FTSE 100: "...the index has dropped below the 5750 level and looks ready to test and breach its Jan 20 low of 5640."

On Thu. Feb 11, the index dropped well below 5640 and touched a new 52 week intra-day low of 5499.50, before bouncing up to close at 5537. Technically, 5640 was not breached because of the 3% 'whipsaw' rule. 

If you think this is technical hair-splitting - a breach of a previous low should be considered a breach - then you may not be able to take advantage of the 3% 'whipsaw' rule. 

I'm not saying the index can't fall lower. But positive divergences visible on all three daily technical indicators - which failed to touch new lows with the index - can trigger a sharp rally that squeezes out shorts.

On longer term weekly chart (not shown), the index touched and closed at 3 year intra-week and closing lows. The 50 week EMA has just slipped below the 200 week EMA. Weekly technical indicators are in bearish zones, but showing positive divergences by failing to touch new lows with the index.

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