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The CAC 40 has been in recovery mode back towards the 7,000 level this week after slumping towards the $6,500 support zone last week, following heightened fears about the Omicron variant.
Downside risks are largely subsided while the CAC40 trades above the 6,920 level, as this is the former all-time high for the leading French index, which is extremely important for the bullish case for the CAC40.
For me, risks still remain as further lockdown could still come across Europe and next week FED meeting could cause further stock market losses if the US central bank aggressively tightens QE.
Furthermore, emerging market risks also linger. Turkey is suffering from inflationary pressure which could spill over for French banks exposed in the region. European banks are also expose via China Evergrande.
In terms of technicals, the CAC40 has plenty of scope to rally further while above the 7,000 level. A massive triangle pattern is forming and once a break from the triangle takes place we should expect an imminent directional move.
Looking at the ActivTrader Market Sentiment some 77% of traders are bullish towards the leading French index. This is a massive increase from last week’s reading, and it 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 massive triangle pattern is forming and being patient is the best course of action until we see a breakout, as the majority of the gains or loss into year-end will take place.
According to technical analysis, a break above the 7,070 level could cause a surge towards a new all-time high, while a breakout under 6,900 could cause a price plunge back towards the 6,700 area.
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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 MACD 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.
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