The market will continue to see a lot of pressure, but I think that the occasional rally will scare a lot of short-sellers.
The French index had tried to rally a bit in the futures market earlier on Thursday but then sold off quite drastically as we have seen negativity in stock markets around the world. We are now significantly below the €6000 level, breaking down to the €5800 level by the end of the session. I think it’s only a matter of time before we break down below, but right now it’s probably only a matter of time before we get some type of relief rally. That relief rally is something that I would not trust because quite frankly there’s no reason to buy equities anywhere right now.
The narrative around stocks is far too negative to think that now is the time to pick up value, despite what talking heads will tell you. The reality is that there is a lot of fear out there, and it’s only going to get worse. The market will continue to see a lot of pressure, but I think that the occasional rally will scare a lot of short-sellers. However, breaking down below the €5700 level opens up the possibility of a move down to the €5500 level.
The ECB is not quite ready to announce its completely dovish intentions, but a few cracks in the ice have appeared. If that happens, it may help stocks, but eventually we will start to talk about whether or not the economy is growing or not. The French economy is suffering right along with the rest of other major ones, so it’s not a huge surprise to see the CAC fall right along with everything else. Ultimately, rallies at this point cannot be trusted for a bigger move until we get above the 6400 level. If we break above there, then we could turn around completely. However, this is a market that shows a lot of uncertainty, and therefore fear should continue to run where we go next. The selling off of the CAC is going to coincide with everything that we see around the world, including the DAX which leads the rest of the European Union. The one thing that I would say is to make sure that you keep your position size relatively reasonable, as the volatility will continue to cause headaches for those trading this market going forward. The Euro has strengthened over the last couple of days, but it’s probably only a matter of time before we see the euro fall as well.