CAC40 Technicals: Taking a breather before next move higher
Last time I wrote about the CAC40, I wrote about the triangular structures and their importance as support and resistance. Since then the CAC40 not only broke out of the smaller structure to the downside but also reversed, went higher and took out the upper boundary of the larger formation that was supposed to act as resistance. However the breach of this line was not all blaze and glory. On the other hand it was a classical move, breaking above the resistance and re-testing it before going higher, thus confirming its importance.
Prerequisites: First of all the move that started on November 16 and eventually took out resistance in my opinion ended on December 24. The move from the top is the largest pullback we have seen since November 16 which tells us that this was probably a top of some importance, how important remains to be seen.
The 200 day moving average (MA) is upward sloping as well as the 50 day MA and the relative strength indicator (RSI) has turned down and so has the daily stochastic indicator. The Bollinger bands are contracting at a rapid pace also confirming some sort of top.
Like other European indices, there is a gap in the chart between November 28 and 29.
The CAC40 has support at about 3580; this is an important line and might be re-tested again after the break out.
Important resistance to me is at the December 24 peak of 3683.
A very important feature of the last up trend is that it is corrective looking which means that we should view this market with some caution.
I have also managed to apply an upward sloping trend channel to this chart; I do not trust it very much yet but it might show itself useful in the future. The lower trend line is important though.
CAC40 Daily technical overview:
CAC40 daily EW count and Fibonacci extensions:
Trading thoughts: My main idea concerning the CAC40 is based on the assumption the break out is indeed valid and that we are going higher. But since the move into the December 24 peak is corrective looking I would want to see prices above that peak (3683) before buying. The reason for this is also that I think that the daily oscillators might need more time to reset and that the market might consolidate for a shorter period of time and possibly slip below support before going higher, thus presenting us with a set up for an entry at a lower price (read below in the last part).
Another advantage of waiting would be that since the top on the 24th marked the end of a larger move, new highs would confirm a resumption of the trend and make it possible to derive Fibonacci targets also from the bullish trend from November 16 into the December peak.
Trade targets would be 3782 and 3810 from a classical technical analysis perspective. From a Fibonacci stance we are looking at 3753, 3850 and 4007. Stops should be placed no lower than 3580.
One of the best situations trading wise would be if this assumed correction morphed into a B wave triangle, since we could then be fairly convinced that we are going higher short term but also that we after the next move upward would be in serious danger of a larger down move. It would be good for navigation purposes if we got such a formation.
If we break the support at 3580 I think that the market will aim to close the open gap from November 28 and 29 but I would personally need more bearish action then that to go short at this point. If support fails but the market reverses and heads through 3580 from below I would consider this a buy signal as I see things today. This scenario is not that farfetched since a correction to 3580 might be too shallow after the bull move from November 16, but that remains to be seen.