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Monday, August 14, 2017

S&P 500 and FTSE 100 charts (Aug 11 '17): bears strike as bulls get spooked by North Korea's war rhetoric

S&P 500 index chart pattern


The daily bar chart pattern of S&P 500 rose to a new high of 2491 on Tue. Aug 8 but closed lower than the previous day's close - forming a 'reversal day' bar that often marks an intermediate top.

War rhetoric from North Korea spooked bulls. Bears used the opportunity to attack. The index dropped sharply below its 20 day and 50 day EMAs, and easily breached the 'support zone' between 2450 and 2460.

The 'support zone' may turn into a 'resistance zone' for some time. (Regular readers were given adequate warning in last week's post - particularly the 'sell' signal given by MACD.)

Daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. RSI has fallen into its bearish zone. Slow stochastic has entered its oversold zone.

On Fri. Aug 11, the index formed a 'doji' candlestick, which indicates indecision among bulls and bears that can potentially lead to a technical bounce towards the 'support/resistance zone'.

Some more correction or consolidation is possible. RSI and Slow stochastic are showing negative divergences by falling lower than their Jul '17 lows. 

Note that the index is trading well above its rising 200 day EMA in a bull market. Bulls may use any further dips to buy.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), but closed above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are correcting overbought conditions and showing downward momentum, but remain in bullish zones.

FTSE 100 index chart pattern



The following comments from last week's post on the daily bar chart pattern of FTSE 100 are worth noting: "The breakout above the down trend line was not accompanied by any significant increase in volumes (not shown). That can lead to a pullback towards the down trend line before the index can rise to a new high."

The index rose to touch a lower top of 7552 on Tue. Aug 8. Bears struck the next day as war rhetoric from North Korea created concern in global stock markets. The index pulled back towards the down trend line on Wed. Aug 9 and then fell sharply down to the 'support/resistance level' of 7300.

Daily technical indicators are looking bearish and showing downward momentum. MACD has crossed below its signal line in bullish zone. RSI and Slow stochastic have fallen below their respective 50% levels.

Some more correction or consolidation around current levels is possible. Note that the index is trading above its rising 200 day EMA in a bull market. Also, all three technical indicators are showing positive divergences by touching higher bottoms than their Jul '17 lows. Expect some short covering by bears, which can lead to a technical bounce.

On longer term weekly chart (not shown), the index formed a large 'reversal week' bar (higher high, lower close), and closed below its 20 week EMA but is trading above its rising 50 week and 200 week EMAs in a long-term bull market. Weekly technical indicators are looking bearish and showing downward momentum.

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