S&P 500 and FTSE 100 charts (Jun 07, 2019): short covering triggers pullback rallies


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S&P 500 index chart pattern

Note the following comment from last week’s post on the daily bar chart pattern of S&P 500: Some more correction, and a drop towards the support zone between 2700-2725 is likely.”

The index corrected further below its 200 day EMA on Mon. Jun 3, but received good support from the zone between 2700-2725. A ‘V’ shaped technical bounce propelled the index above its 20 day and 50 day EMAs back into bull territory by Thu. Jun 6.

On Fri. Jun 7, the index breached the (purple) down trend line after spending 5 weeks below it, and closed with a 121 points (4.4%) weekly gain. The week’s rally was accompanied by sliding volumes. A pullback towards the down trend line is a possibility. 

Daily technical indicators are looking bullish, and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level after bouncing up from the edge of its oversold zone. Slow stochastic is rising sharply towards its overbought zone. 

The rally may have been triggered by short covering. So don’t be surprised if bears start to ‘sell on rise’ to regain control.

On longer term weekly chart (not shown), the index formed a large ‘reversal’ bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull marketWeekly technical indicators are turning bullish. MACD is below its signal line in bullish zone, but has stopped falling. RSI has moved above its 50% level after falling below it. Slow stochastic is below its 50% level, but has stopped falling.

FTSE 100 index chart pattern


The daily bar chart pattern of FTSE 100 touched a low of 7080 on Mon. Jun 3, but formed a ‘reversal day’ bar (lower low, higher close) that triggered a ‘V’ shaped pullback rally.

By not falling below 7000, the ‘cup and handle’ pattern (refer this post) remains alive. The index closed above its three EMAs in bull territory, gaining 170 points (2.4%) on a weekly closing basis.

The bearish ‘head and shoulders’ pattern (mentioned in last week’s post) will get negated if the index can close convincingly above its previous (May 22) top of 7373. 

Daily technical indicators are looking bullish and showing upward momentum. MACD has crossed above its signal line in bearish zone. RSI has moved above its 50% level. Stochastic has entered its overbought zone.

Near-term index upside may be limited. Sliding volumes during last week’s rally can encourage bears to ‘sell on rise’.

On longer term weekly chart (not shown), the index formed a large ‘reversal’ bar (lower low, higher close) and closed above its three weekly EMAs in a long-term bull territory. Weekly technical indicators are in bullish zones, and showing upward momentum. 

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