The Parisian CAC Index had a relatively strong session on Friday, engulfing the Thursday candlestick with an impressive move. That being said, the market is more or less in a consolidation area, and I think that’s probably how you have to look at the CAC currently. The size of the candlestick is relatively large considering what we have seen as of late, and I still believe that the €6200 level above is going to continue to cause problems. It is not until we break up up there that I think the French index can really start to take off.
If we do break above the €6200 level, I then suspect that the index will target €6500, where we had fallen from to begin with. This is an area that has been major resistance more than once, and we’ve formed a “M pattern” previously. Breaking through that would obviously change the entire outlook of the market, but right now it seems to be a bit of a tall order.
While the ECB is talking about a couple of token interest rate hikes, the reality is that the central bank will probably have to change their attitude relatively soon. If and when they do, that might be a clue that you need for the CAC to finally take off. Keep in mind that the French index is heavily tied to luxury goods, which in a global recessionary environment is not a good look. Because of this, I do believe that Paris will underperform some of the other indices on the continent such as Frankfurt, Amsterdam, and possibly even the Swiss.
I would anticipate more choppy behavior than anything else, and I think that much like other indices around the world, we just find this market in a little bit of an oversold condition. This is a short-term situation that will eventually either work off the froth by going sideways, or break down rather significantly. We could get a little bit of relief, but see that as a way to reload the short position that you may have at the moment. Keep in mind that a lot of traders are underwater at the moment, and will be looking to get out of the market as soon as they can get close to breakeven. Because of this, we should continue to see plenty of resistance.
