The Parisian CAC Index fell a bit on Friday to test a minor uptrend line, only to turn around and rally quite significantly. The 6500 level has been overcome, and now it looks like we are getting ready to go looking towards the 50-day EMA. Furthermore, there is also a downtrend line sitting above that continues to offer plenty of resistance. If we were to break above there, then the market is likely to go looking towards the 1600 level, possibly even the 7000 level after that.
This is a market that I think is trying to save itself, and I would point out that the stock indices around the world did fairly well during the trading session in order to show signs of life, but at this point it looks to me as if we are going to turn around and break down below the uptrend line, which could open up a rather significant selling opportunity to reach towards the 200-day EMA.
This has been a rather significant pullback, so the question now is whether or not we can continue to go higher over the longer term. I think we are trying to figure out whether or not stocks are going to save themselves, and with bond yields dropping a bit on Friday, that gave the CAC a little bit of a boost. Whether that can continue into next week is a completely different question, and it should be noted that this was the end of the third quarter, so there may be a bit of window dressing involved. I think we are going to continue to squeeze in this area, perhaps building up the inertia to make a bigger move. In the meantime, it is going to be difficult to put a lot of money in this market, so I would be very cautious about position size. I would add as soon as we see a bit of confirmation in a winning position, but you need to be cautious and try to jump “all in” right away. I suspect that the next couple of sessions are going to be just as choppy as the previous few weeks. With that in mind, it is all about money management at this point until we get clarity.
