At this point, I think it’s still a matter of feeding rallies.
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By forming a bit of a hammer, then it’s likely that we could go to the 50-Day EMA. The 50-Day EMA is a technical indicator that a lot of people pay close attention to and offered quite a bit of resistance the last time we got up there. Because of this, I think it will continue to be important, but even more important would be the 200-Day EMA which sits right around the EUR6400 level. Keep in mind that the CAC is highly driven by luxury goods, and of course, it comes down to whether or not the rich are spending.
If we were to turn around and break down below the bottom of the candlestick, then I think we can look into the EUR5900 level, the same area that cost quite a bit of support back in July. Breaking through their opens up a ton of selling, as it would be huge destruction of support. I think given enough time; we have a scenario where the situation in the European Union will weigh upon stocks. I just don’t have a scenario in which I think we go higher for a longer-term move. I suppose it’s possible that the ECB comes to the rescue, but at this point in time, I don’t even think that’s going to be enough.
At best, I think you get a situation where the market is going to be range bound, but eventually, the downward pressure should take over. This will be especially true once we get into the winter and people see exactly how bad the energy situation is going to be in certain parts of the European Union. Remember, even though there are a lot of luxury goods in the CAC 40 Index, the reality is that if the customers are all in trouble, they are going to be buying handbags or jewelry. At this point, I think it’s still a matter of feeding rallies.