The CAC in Paris gave up early gains Monday as it appears that there was very little volume willing to step out on the risk spectrum. This should not be a huge surprise, as there are so many concerns about a global recession. After all, Paris is full of luxury brands, and although the ultra-wealthy may do fine during the recession, the reality is that not everybody will, and some of these high-end brands may have to take a little bit of a write down.
The €6200 level above is an area where I see as potential trouble, especially with the 50-day EMA sitting just above it. Furthermore, there is a small gap that sits there as well, and we have “market memory” from previous support and resistance in that general vicinity, so it all ties together for a perfect shorting opportunity, assuming that we get some type of exhaustion after a bounce that reaches that area. Even if we were to break above that, I think you have even more trouble near the 200 -day EMA, currently at the €6150 level.
More likely than not, we will see this market break down below the €5800 level and continue to drop. In that scenario, I anticipate that we will eventually try to find the €5500 level. This is a market that is going to suffer right along with the rest of the other European indices, and special attention should be paid to the DAX in Germany, as it does tend to lead the way for the rest of the European Union.
Even if you do not trade this particular index, it is worth watching. Both Germany and France will lead the way for other indices around the continent, as they are by far the two largest markets. Regardless, this is also a situation where you could make a bit of a bearish flag on the chart if you chose to, which is also a very well known signal of negativity. Because of this, I think it is probably only a matter of time before sellers jump all over this market yet again, despite the fact that the euro is so historically cheap at the moment. The idea of cheap exports flowing out of France does not seem to be enough to get people convinced that companies will start churning more of a profit.
