The CAC Index initially pulled back a bit during the trading session on Monday, but then turned around to rally again as most stock indices did. However, we are currently looking at the 6500 region as an area of potential resistance, based upon a previous uptrend line that has now been broken and retested. I suspect that the next 24 hours could be rather important for the CAC 40, as we have one of two possibilities when we break out of a channel, suggesting that we either going to reverse the overall trend or simply consolidate sideways before continuing.
When you look at this chart, you can make an argument for either, because eventually channels do get broken. I look at it in the following light: the 50-day EMA is sideways just below the 6500 level and is offering temporary support. If we can break out above the 6600 level, then I think we will continue to go higher. As long as we do not break down below the lows of the last couple of days, then the market should consolidate before perhaps picking up momentum. I think a lot of this comes down to overall risk appetite, as we have seen some concerns when it comes to factory orders in the European Union.
With that in mind, I am going to be paying close attention to the close over the next couple of days and whether or not we continue to go higher. However, if we turn around and break down below the lows of the last couple of days, is very likely that Paris will see a drop down towards the 200-day EMA or maybe even at the 6000 level. In that scenario, I think you would probably see a general selloff across the continent, and it is possible that the DAX will follow right along with it, although it should outperform Paris.
When you look at this chart, you can make a strong argument for a potential simple pullback, as we had been grinding along for so long that it was only a matter of time before we had to calm down. Nonetheless, you can use the DAX as a bit of a secondary indicator because it typically will lift other European indices right along with it. If the DAX falls, that will put serious pressure on this index.
