The CAC Index rallied significantly to kick off the trading session on Friday, breaking above the 6900 level before pulling back to form a shooting star. The shooting star is a negative candlestick, and I think that the market may have gotten ahead of itself. In fact, the last thirteen candlesticks in a row have been green, so it is only a matter of time before we see some type of pullback. Perhaps the candlestick from the Friday session might be the first sign of this, but with the type of move that we have made, I would not be a seller anytime soon. In fact, the market will probably be best played from a standpoint of “buying the dips.”
If we do break above the top of the candlestick for the trading session on Friday, then it is likely that we go looking towards the 7000 handle. The 7000 handle will obviously attract a certain amount of attention as well, but I do not like that trade as much, because it feels a lot like “chasing the trade”, which is one of the worst things you can do as a trader. The euro could have its part to play as well, as the idea of exports becoming cheap out of France certainly would help, especially as a lot of the French exports are of the luxury type.
On a pullback, I would anticipate that the 6800 level should be supportive, and after that we would almost certainly see support in both the 6700 and 6600. I look at the 6500 level as the “floor in the market”, but with the 50-day EMA above there, it would be rather shocking to see the market break down to that level. Speaking of the 50-day EMA, it is worth paying close attention to, because we had seen a nice reaction to it as of late, so over the longer term I would anticipate that to be a highly predictive and important level.
If we do see a sudden strengthening of the euro, it is possible that may work against the CAC, and it is worth thinking about, because the euro had such a strong day on Friday. However, at this point, we are still very low as far as value is concerned, so it is just something to keep an eye on down the road.
