The CAC40 fell to its lowest trading level since April 2021 last week, however, a strong bounce-back above the 6,000 level sets up the prospect of an important low forming last week.
Bulls have much work to do to safeguard the bullish case as the Ukraine crisis and general bearish headlines ahead of the week’s main event, which is the FED rate decision.
Do keep an eye on this meeting, because aside from the FED rate hike being a certainty, it certainly does have the potential to rock French stocks further, especially if we see more rate hikes forecast.
For me, it is too early to call a bottom in the CAC40 index. I think as traders we need to acknowledge last week’s strong bounce but remain extremely wary of the fundamental backdrop.
Looking at the ActivTrader Market Sentiment, we do need to be cautious as well, as some 71% of traders are bullish towards the leading French index. This is a worry for bottom pickers.
I suspect the CAC40 will continue to head lower while sentiment towards the index remaining high. Typically, retail traders have poor market timing and miss out entirely or even lean against the prevailing market trend.
Additionally, all major European indices are currently below their 200-day moving averages, so stocks are now in a bear market at current trading levels.
CAC 40 Short-Term Technical Analysis
The four-hour time frame shows that a massive head and shoulders pattern has been activated, with the pattern pointing to more losses towards the 5,400 level.
According to the strategy of trading these patterns, a sell signal is in place yet, but it is possible we could at least see a test towards the neckline of this pattern this week.
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CAC 40 Medium-Term Technical Analysis
Looking at the daily chart it continues to show plenty of scope for further upside, as a major test of a key trendline, from a rising price channel has taken place. And a bullish bounce is underway.
The scope for further upside is possible towards the middle of the price channel all the time while the index remains inside the channel. Typically, these are bearish reversal patterns.
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