The technical movement that Stock markets are carrying out is very similar to the recovery cycle that they developed in 2004. At least this conclusion could be made after the analysis of the French Index, Cac 40.
The current chart compares two different moments, 2004 and 2010, which may be considered as analogous from a technical perspective.
In 2004 the market had soared a stunning 57% since March 2003. Subsequently, the Parisian Index got stuck for the whole year in a lateral range, which in the chart appears as a 12%-height rectangle. Prices hit the support of this pattern (the zone of 3.500 points) three times. Finally, it demonstrated that it was strong enough to ensure the continuity of its rising long-term structure.
Currently, the situation is very alike. Despite the collapse of the European Stocks markets in May 2010, the balance remains, as it shows the new rectangle formed by the support of 3.500 and the resistance of 4.000 points. The first level is playing a key role in the short term because it concentrates the purchasing interest. This area has been reached for three times in the last seven months as it happened in 2004.
Despite the general weakness of the Financial Markets, if History repeats itself, the main French Index could withstand the bearish pressure. In that case, the index could deploy the same movement that in 2005 when it eventually broke the top of the rectangle, which brought about a new upward impulse that led the CAC very close to an all-time high.
Consequently, the support of 3.500 points is a key level to watch over, because the likelihood of a similar move to the one that happened in 2004 will depend on its resilience.
The recommendation is to hold. Stop loss in 3.300 points.
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