The CAC 40 initially pulled back a bit during the trading session on Tuesday but found a little bit of buying pressure to try to reach towards the highs of the last couple of days. Ultimately, this is a market that I think will continue to see a lot of volatility and choppiness, as we had recently broken down below the uptrend line that had been so important previously. However, we are also sitting just above the 50-day EMA as well, which could cause a significant amount of interest.
Looking at this chart, you can see that we have been going back and forth in what could be thought of as a little bit of a megaphone pattern, but if we can get above that 6600 level then I think we have a real opportunity to crack to the upside and go much higher. If we can break above the recent highs, then the market is likely to go looking towards the 6800 level, followed by the 7000 level above which is a large, round, psychologically significant figure that people will be paying close attention to.
It should be noted that the Parisian CAC is highly correlated to luxury items with the exception of Airbus, so it also is a good barometer for where luxury spending in the European Union would be. Ultimately, the CAC can move right along with the German DAX, so as one goes, typically the other will go. The CAC does tend to move a little quicker at times, so keep in mind that if there is a major “risk on” type of move, then it is likely that the CAC will be one of the leaders.
On the other hand, if we were to break down below the most recent bounce, then the market could really unwind to reach down towards the 200-day EMA. Ultimately, that could be a nice shorting opportunity, but to be honest, if we were to break down below the 50-day EMA, that might be reason enough to get short as well. I do think that at the very least the CAC will probably underperform some of the other major indices in the world, not only due to the fact that we have trouble with luxury spending, but we also have to worry about the French vaccine passports and the domestic trouble that we have seen in reaction to them.
