CAC 40 Index Futures Forecast December 17, 2012, Technical Analysis

The CAC 40 Index had a very neutral day on Friday, as we are simply “churning” in place. This makes sense, as we have seen such bullishness lately. We have recently broken out and above the €3600 level, so the fact that we are take a breather 50 points above isn’t that big of a surprise. After all, this was a very significant resistance level that has been overcome.

There are reports that major funds in London are pulling out of their shorts in France. There was a significant sized bet against the French economy, and it seems to be unwinding at this moment. Because of this, this market should continue much higher and we feel that a move to the €4000 level is certainly well within reason. It won’t happen overnight obviously, and it could be something that takes several months, but it does appear that this market will continue to be bullish as long as we can stay above the €3600 region.

Because of this, we are more than willing to buy bullish candles and pullbacks that show any signs of support. In fact, we hope to have a significantly large position in this futures market over the course of time. Scaling and would be suggested though, as we are heading towards a fairly illiquid time of year. Nonetheless, we think that this will be a trade that should work out quite well over the next several months.

If we managed to break above the €3660 level, we would have to start buying at that point as well as it would show continued momentum to the upside. This of course could happen, as we move sideways and take a breather, it could relieve the pressure to pullback.

We think that one of the biggest beneficiaries of this sudden French bullishness will be the financial sector. Remember, they’ve been beaten up quite ruthlessly because of debt that they have held in places such as Greece and Ireland. Now that the European Central Bank is willing to prop up these bond markets, it believes a significant amount of pressure on banks around the region.