The weekly chart for CAC 40 offers an ideal downside impulsive wave; yet looking deeply at the internal count we will discover that 3 waves have been already formed from 6170.00 zones which represent the recorded peak in July 2007 to the recorded bottom of 2465.00.
CAC 40 Index - Annual Technical Analysis for 2010
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Thus, we believe that the 4th wave represents the bullish movements that started from the aforesaid low until present levels; this count shows that the index is in a real need for forming the grand fifth wave.
The question remains on where will the fourth climax be?
The index is currently facing the most critical Fibonacci level of 38.2% and this level itself represents an important resistance level. Additionally, the provided daily chart below shows a bearish harmonic pattern [AB=CD] that is still seeking for a confirmed completion.
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Despite that the proposed CD leg offered a potential reversal zones around 4150.00, but we all know that the corrective 4th wave consists of 3 internal waves [A-B-C]. Therefore, the classical rounding top pattern with a neckline around 3600 zones, seen on the image below, might be capable of replacing the awaited reversal for the harmonic structure.
A breakout below 3600.00 zones will bring a panic bearish action, and if that occurred, it will be evidence for the solidity of the 38.2% Fibonacci level as discussed earlier.
On the other hand, breaching 3912.00 zones -cluster resistance- might cause a failure to the classical point of view and then the index might reach 4750.00 zones- 61.8% Fibonacci level for the downside move mentioned in the first paragraph-.
This failure risk scenario will not change the suggested weekly count which confirms the bearish direction over medium term basis, as the formation of the 4th wave will still be valid.
Breaching 61.8% Fibonacci level at 4850.00 zones, accompanied by a stable weekly closing above it might damage this negative outlook, and if that happened, the northern areas of 5290.00 will be visited sooner or later.
To conclude, the preferred scenario is bearish, retargeting areas of 2465.00 but a decisive breakout above 4750.00 will damage this outlook.
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