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The CAC 40 has been trading in a mixed fashion over recent days, after briefly recovering above the 7,000 level, and then slumping lower due to heightened fears about the Omicron variant.
Over the weekend, The Netherlands imposed a new lockdown, raising fears that other key European countries, such as France and German, could soon follow suits and announce their own lockdowns.
Downside risks prevail for French as the outcome of the Fed’s meeting showed an increased pace of tapering, which significantly increases the risk of a slowdown in the global economy
Some hope exists that the CAC40 could hold the current range after French manufacturers’ confidence unexpectedly improved in December, adding to optimism about economic recovery.
The business confidence index rose to 111 in December from 110 in the previous month. The score was forecast to fall to 109. However, the technical do show that a triple-top pattern has formed, which is a historically bearish reversal signal.
Failure for CAC40 bulls to break the triple-top could cause further downside pressure towards the lows of the month, and a force a key test of a multi-year trendline on the higher time frames.
Looking at the ActivTrader Market Sentiment some 77% of traders are bullish towards the leading French index. This is a big red flag given the Omicron situation and could be bad news for bulls.
I suspect the CAC 40 will continue to head lower while sentiment towards the index remains high. 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 a bearish price pattern has started to emerge, namely a triple top price pattern. These patterns are typically very bearish signals for investors.
According to technical analysis, a break under the 6,660-support level could cause a surge of selling towards the leading French index, a potential sell-off to new 6,400.
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CAC 40 Medium-Term Technical Analysis
Looking at the daily chart it continues to show plenty of scope for further downside, as a massive amount if bearish RSI price divergence has formed during the multi-year rise.
The scope for further huge losses in the CAC40 is obvious, and the decline towards 6,000 seems the most likely occurrence of we were to see a major price drop under last week’s low.
Additionally, the CAC40 could be setting up for a huge test of trendline support, 6,700 level. If this trendline breaks then expect huge losses in the CAC40 into year-end towards the 6,400 level.
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