S&P 500 and FTSE 100 charts (Dec 07, 2018): bears brook no nonsense from bulls

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S&P 500 index chart pattern

The following comments appeared in last week’s post on the daily bar chart pattern of S&P 500: The next hurdle for bulls is the previous (Nov 7) index top of 2815. Bears can be expected to put up some resistance there – as they had done in Oct ’18.”

In a curtailed trading week, the index touched an intra-day high of 2800 on Mon. Dec 3. Bear resistance caused a drop to an intra-day low of 2773 before the index closed at 2790 (near its opening level) – forming a ‘doji’ candlestick pattern that some times mark a change of direction.

The next day, the index fell sharply below its three EMAs into bear territory. After the mid-week holiday (due to President Bush’s funeral), bears attacked with renewed vigour. The index touched an intra-day low of 2621, but recovered substantially to close at 2696.

Bulls failed to drive home their advantage. The index touched an intra-day high of 2708 on Fri. Dec 7, but closed at 2633 – losing 127 points (4.6%) on a weekly closing basis.

The strong index volatility during the past two months is an indication of a transition from a bull to a bear market. (The volatility during Feb-Mar ’18 was an advance warning of such a transition.) The impending ‘death cross’ of the 50 day EMA below the 200 day EMA will technically confirm a bear market.

Daily technical indicators are looking bearish and showing downward momentum. MACD is about to cross below its signal line in bearish zone. RSI is falling below its 50% level. Slow stochastic is falling towards its oversold zone

All three indicators are showing positive divergences by touching higher bottoms – hinting at another pullback towards the 200 day EMA. Bears are likely to ‘sell on rise’ again.

On longer term weekly chart (not shown), the index closed below its sliding 20 week and 50 week EMAs, but above its 200 week EMA in a long-term bull market. Weekly technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. RSI is falling after facing resistance from its 50% level. Slow stochastic is poised to fall inside its oversold zone.

FTSE 100 index chart pattern

The daily bar chart pattern of FTSE 100 touched an intra-day high of 7145 on Mon. Dec 3, but faced strong resistance from its sliding 50 day EMA. That was a trigger for bears to go on the offensive after two months of sideways consolidation (marked by blue ‘rectangle’).

A ‘rectangle’ is usually a continuation pattern. Since the index was falling when it entered the ‘rectangle’, the likely breakout was downwards. But a ‘rectangle’ tends to be unreliable, so one needs to wait for the eventual breakout before taking any buy/sell decision.

The downward breakout occurred on Thu. Dec 6. The index touched an intra-day 52 week low of 6674 before recovering to close above 6700. A pullback to the lower edge of the ‘rectangle’ followed on Fri. Dec 7. Bears promptly used the pullback to sell.

The index lost 202 points (2.9%) on a weekly closing basis, and is trading well below its three EMAs in a bear market.

Daily technical indicators are looking bearish. MACD is falling below its signal line in bearish zone. RSI has bounced up after receiving support from the edge of its oversold zone. Stochastic is trying to emerge from its oversold zone. More correction is likely. 

On longer term weekly chart (not shown), the index touched a 2 year low and closed below its three weekly EMAs in long-term bear territory. Weekly technical indicators are in bearish zones, and showing downward momentum. MACD is falling below its signal line. RSI is about to fall inside its oversold zone. Stochastic has re-entered its oversold zone.

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