After a turbulent week of global markets recovery, the following week looks like a decisive week which will give a hint about the medium term direction of the market. Major global Indexes stand at a crucial recovery point facing technical resistance on the upside failing to break which, the markets may again start to continue to slide!!
In the previous week, CAC 40 has completed a 50% retracement of its fall from its lifetime high of 5567 to close at 5281. This is a very important level for the Index, in terms of technicals, since all the major technical signals like 200 Day-Moving-Average, 50% Fibonacci Retracement, Horizontal Resistance level and MACD currently stand close to this level. Fundamentally we also have a few key events and data like French flash manufacturing and services PMI, FOMC Meeting minutes, French final CPI, ECB Monetary policy meeting minutes, and the start of Italian parliamentary elections. (The US market remains closed on Monday because of which there chances of subdued intraday volatility in the markets)
Technical Analysis: After seeing a big fall of about 500 points, the CAC 40 was able to retrace back 50% of its fall in the previous week and finish at a crucial resistance level just below its 200 DMA (Day Moving Average). This coincides with 50% retracement level on the Fibonacci Retracement levels and also with the vertical support levels, as can be seen on the chart above. The Index should be able to cross these hurdles under normal circumstances since the fall of 500 points seemed more like a mix of shock and over-reaction. This strength in reversal from the fall is also supported by the crossover of averages in the MACD. Therefore, we suggest the following on the basis of the current market set-up:
- SELL below the 200 DMA (@5300) with a stop-loss above 100 DMA and a target around 5100. The 200 DMA acts as big resistance or support since it is very big indicator of the long-term trend but since the market was able to breach this very easily in the past few days, it should not face much resistance in crossing above this again. So, enter this strategy only if the Index does not open above 200 DMA and also if it is not able to sustain above this level thus showing weakness.
- BUY above the 200 DMA with a stop-loss below 5150 and a target of 100 DMA. Since the market is showing quite some strength in its recovery which is supported by MACD, entering this trade has a higher probability of winning. Enter this trade if the market opens above 200 DMA and shows strength while trying to maintain its upside during the first 15-30 minutes of the day.
- BUY above 100 DMA with a stop-loss below 200 DMA and a target of 5500. Should the markets continue with its strong recovery and cross above 100 DMA in the same week, it may try to reach back near it’s all time high and therefore could prove to be a fruitful trade.
Fundamental Analysis: There are quite some French data set to be released this week which carry a moderate level of impact but the important releases to look for will be the release of FOMC & ECB Monetary policy meeting minutes which may give us a hint of the timeline of expected increases in the FED & ECB interest rates. Any unexpected shocks from these minutes could influence the markets direction a lot since interest rate policy has been one of the important reason for the sudden fall in market. Therefore, keeping a close watch on positions during the release of this data becomes important.
|Mon Feb 19||All Day||Bank Holiday|
|Wed Feb 21||7:00am||French Flash Manufacturing PMI||58.2||58.4|
|French Flash Services PMI||59.1||59.2|
|Thu Feb 22||6:45am||French Final CPI m/m||-0.10%||-0.10%|
|11:30am||ECB Monetary Policy Meeting Accounts|
|3:00pm||Crude Oil Inventories||1.8M|
|Fri Feb 23||Tentative||Fed Monetary Policy Report|
|2:15pm||FOMC Member Dudley Speaks|
|5:30pm||FOMC Member Mester Speaks|
|7:40pm||FOMC Member Williams Speaks|
|Sun Feb 25||Day 1||Italian Parliamentary Election|
Finally: This week, the markets should be driven by the technical factors over the fundamental data and events since most of these events are already prices into the market already. Except when there may be some unexpected shocks coming from these events. Should the market show strength, the recovery should be quick and without any turbulence. On the basis of the analysis above here are a few trading ideas for the week on the Index CAC 40 :
BUY above the 200 DMA with a stop-loss below 5150 and a target of 100 DMA
SELL below the 200 DMA (@5300) with a stop-loss above 100 DMA and a target around 5100
BUY above 100 DMA with a stop-loss below 200 DMA and a target of 5500
By: Sannidhya Agrawal (Consultant GEMIC)