CAC 40 Index: Does the Bounce Stop the Drop Toward 5700?

Summary:

The CAC 40 index is higher this Tuesday, following the direction of other European markets as markets ignore French political deadlock.

The CAC 40 index does not appear to have suffered from a hangover from France’s hung parliament, as it is presently up 1.19% this Tuesday. This comes as European markets are trading higher the day after the shocks of the last two weeks. Moreover, the CAC 40 index appears relatively stable and unconcerned with the political situation in France, where newly re-elected President Emmanuel Macron’s party lost an absolute majority in the French parliament.

Macron’s Ensemble centrist coalition could not form a majority in parliament after defeat for some of its lawmakers. This meant that despite winning more seats than any other party in the elections, it could not attain the threshold to give it a commanding majority. However, the stock market’s attention appears elsewhere, not domestic geopolitics.

Among the top gainers this Tuesday on the CAC 40 index is Renault, SAFRAN and aircraft maker Airbus, which is 3.04% higher as of writing. Credit Agricole and Societe Generale are also on the gainers list. Conversely, among the index’s losers are ArcelorMittal, LVMH Moet Hennessy Louis Vuitton, Air Liquide and Schneider Electric.

Technically speaking, the bounce at the 5857.73 support prevented the index from falling to 16-month lows at 5704.09. The CAC 40 index outlook below indicates where this price action leaves the French stock market.

CAC 40 Index Outlook

Following the symmetrical triangle’s breakdown on the CAC 40’s daily chart, the price action broke down the 6115.23 support (10 May low), converting this level to new resistance. The breakdown move ended at 5857.72 following the bounce of 20 June. This bounce puts the price action on a collision course with the new resistance at 6115.23.

A break to the upside sends the price activity toward 6575.95, where the 30 May/6 June 2022 double top is found. Above this level, additional resistance targets are seen at 6747.69 (20 December 2021 low and 21 April 2022 high) and 6913.67 (13 August 2021 and 23 February 2022 highs).

Conversely, rejection at 6115.23 puts the price on a collision path with 5857.73. If the bulls fail to defend this support level, 5704.09 (26 February 2021 low) becomes the new target to the south. An additional harvest point for the bears is seen at the 5407.74 price mark, the 29 January 2021 low site.