French markets give up early gains
It will be on a case-by-case basis, but overall it should drive the index lower if we do see growth being hit.
French markets initially rallied to the €6,000 level on Tuesday, but the CAC was unable to hold the gain. This showed across the board as risk appetite initially returned on Tuesday, but was restored fairly quickly. It’s interesting that this happened, because we just formed a “double bottom” just below. If this bottom breaks, it could open up a sell-off in the ACC, and be a sign that more trouble is on the way for stock markets in general. The European Union will of course be very sensitive to the CAC because it is the second most important market.
On the upside, the €6100 level offered a bit of resistance, but if we were to break above the high of the candle from Tuesday, it would largely turn it into an inverted hammer, which can be a bullish sign. At this point, I would expect the CAC to try to reach the €6200 level, maybe even as high as the 50-day EMA. That being said, it’s hard to imagine a scenario in which European equities would suddenly take off, as there have been comments here and there from the ECB about possible tightening, and even if that wasn’t the case, it there are a lot of worries when it comes to growth and energy.
On a breakdown below the double bottom, I think we have a real chance of getting down to the €5,500 level in the longer term. Stock markets in general around the world are looking very miserable right now, so I just don’t see how that’s going to change. Given enough time, three is likely to see them all moving in the same direction, and that’s going to be lower. There are recession worries around the world, and France is no different.
Keep in mind that the French index is heavily exposed to luxury goods, so it needs people willing to spend on luxury goods. In a recessionary environment, these are normally the first things to be thrown away, although it should be noted that the ultra-rich tend to survive well. It will be on a case-by-case basis, but overall it should drive the index lower if we do see growth being hit.