Index Pulls Back from 50-Day EMA

Keep in mind that the CAC will follow right along with the other indices around the world, as correlations are running one-to-one when it comes to all risk assets.

The Parisian CAC pulled back rather significantly on Wednesday as we had approached the 50-day EMA, and then pulled back rather drastically. In fact, the European indices have struggled drastically as we continue to see a lot of concern when it comes to the global economy. The French index is highly levered to the luxury markets, which are going to struggle in this type of environment.

Advertisement

When you look at the chart, you can see that we have been selling off drastically from the 50-day EMA every time we reach it, and I think we are going to continue seeing a lot of downward pressure. The fact that we are closing at the bottom of the candlestick suggests that we are going to get a bit of follow-through, so I would anticipate that the market is going to look to the €6200 level, possibly even down to the €6100 level. We have had a significant rally lately, but at this point, it is only a matter of time before the overall trend takes over, so it makes sense that we would drift lower.

The alternate scenario is that buyers take out the 50-day EMA on a daily close, or perhaps even take out the €6500 level. If that were to happen, then the 200-day EMA would be targeted next, which is sitting just below the €6600 level. The size of the candlestick essentially wiped out the gains from the last couple of days, so that does suggest that we have plenty of downward momentum. Keep in mind that the CAC will follow right along with the other indices around the world, as correlations are running one-to-one when it comes to all risk assets.

If we break down below the €6000 level, then we could see the bottom fall out of this market, but you would probably see that appear initially in other markets, with the CAC following. Keep an eye on some of the smaller indices in the European Union, because they could lead the CAC and other major indices lower as money continues to flow out of risk appetite. Even a falling euro could be a clue at this point, as it seems like money is all running in one direction, and that seems to be the US dollar.