The CAC 40 is rapidly moving into price discovery at all-time high, as traders of the leading French index focus on positive corporate results look past fears about the new COVID-19 Delta cases in Asia and global lockdowns.
Strong quarterly results on both sides of the Atlantic and robust macroeconomic data, particularly last week’s job report from the United States, have helped most index’s in Europe to continue their technical breakout this week. The CAC40 has broken its absolute record high, printed in of September 2000.
The corporate results season is close to finishing, with most European companies disclosed their accounts. The majority of companies have exceeded expectations, with profits on average in the second quarter. This is one of the reasons why European stocks and the CAC40 are rallying sharply.
It is also noteworthy that accommodative monetary policies by central banks, no sense of urgency that rate hike rates are going to happen until at least next year, and potentially inflation being transitory and pointing to further stock gains.
In terms of technicals, the CAC40 has plenty of scope to rally further until we see profit taking from investors. The 7,000 level looks to be an imminent price target; however, I think the index could even hit 8,000.
Looking at the ActivTrades Market Sentiment some 47% of traders are bullish towards the leading French index. This is a massive drop from recent reading, as 91 percent of traders were bullish last month.
I suspect the CAC 40 will continue to head lower while sentiment towards the index remains neutralized. Typically, retail traders have poor market timing and miss out entirely or even lean against the prevailing market trend.
CAC 40 Short-Term Technical Analysis
The four-hour time frame shows that an inverted head and shoulders pattern is in full swing, and the majority of the gains from the pattern have already taken place.
According to technical analysis buying price dips towards the 6,800 or 6,700 support areas is probably a low-risk strategy because the trend remains bullish and the 7,000 level is flagged as the most likely target.
CAC 40 Medium-Term Technical Analysis
Looking at the higher time frames the daily chart continues to show plenty of scope for further upside, as a massive, inverted head and shoulders pattern continues to unravel to the upside.
The inverted head and shoulders pattern shows scope for further huge gains in the CAC40, even though significant gains have already taken place. Overall, the pattern suggests the medium-term target for the CAC40 is 8,000.