Macroeconomics and seasonality are not on the CAC40 side

01 September 2022 103
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The French CAC40 stock market index rose by as much as 14.5% from early July to mid-August. Stock prices were pushed up in almost all major stock markets by the hopes for the passage of the peak of inflation and the easing of the position of the world's central banks. However, in the second half of August the market sentiment began to worsen again, and the downward trend in stock indices, which began at the beginning of the year, resumed.

 

It resulted in leveling of more than half of the summer wave of growth. CAC40 is now very close to the mark of 6000, which has practically no significant supports up to this year's lows near 5800. An update of these minimum levels is highly likely due to the outlook for the coming weeks.

 

Inflation in Europe continues to renew its' highs. Judging by the latest statistics, the price growth rate exceeded 9%. It is the highest rate since the creation of the European Union. This leaves the ECB no choice as they will have to significantly increase the key rate at the September 8 meeting. At the same time, most market participants are now expecting 0.75% rate increase at once. No one could even think of this increase few months ago. A new debt crisis in the countries of Southern Europe is becoming more and more likely, given the already very high credit burden of the region.

 

The factor of seasonality also plays against CAC40. September is historically one of the worst months for the stock market. In addition, in the first half of the month, the French index on average shows much worse dynamics (0.02%) compared to the 2nd half of the month (0.42%).

 

The CAC40 has so far cleared the 38.2% Fibonacci level (6100) and moved further down towards 5980. Given the proximity of the RSI indicator to an oversold condition, a rebound is possible in the coming days before further decline. Therefore, it may be wise to wait for the upward movement back to 6100 and open positions with the expectation of a continuation of the decline.

 

 

Following trading option can be offered:

 

1) Sell CAC40 at the current price. Take profit – 5980. Stop loss – 6100.

 

2) Sell CAC40 when it rises to the level of 6100. Take profit – 5980. Stop loss – 6200.

 

Traders, at their discretion, can also use Trailing stop instead of a fixed Stop loss.

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