There was a daily-scale top extension in the Dow version of the French stock index yesterday:
This makes us feel a bit better about selling some more Europe short. The arguments made in the January 26 edition (yesterday) about the danger of selling European stock markets hereabouts are still valid but this extension tilts the odds in favour of a price drop (or maybe just a pause) soon. The French market has behaved as if it belonged in Northern Europe but the background situation places it firmly in the Southern group that is damaged by membership of the Euro. France can now be sold short and so can Italy, even though we have no signal there. We already have a Spanish short on so keep position sizes modest and don’t risk too much on these shorts. We will advise when we think that stops can be moved to reduce risk further.
There will be support at the level of the recent compression also shown on the chart, which starts at the level that equates to 4300 in March delivery CAC futures. If that is approached any time soon, cover all European equity shorts without further word from us.
