The good health of the CAC40 since the major low of October 3 seems to degrade somewhat. While European stock markets have benefited for several weeks from the decline of the spectrum of hard Brexit and encouraging words from the United States and China on the trade front, Donald has promised a further increase in tariffs on Chinese products. if no agreement was found with Beijing, thus sealing the atmosphere.
And Wednesday, Donald Trump broke the nail by saying he had not yet signed a trade deal with China because Beijing is not ready “to do (his) share,” reports AFP. The US Congress also adopted Wednesday an overwhelming majority A resolution supporting “human rights and democracy” in Hong Kong against Beijing and threatening to suspend the special economic status granted by Washington to the former British colony.
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What does the technical analysis say?
On the CAC40, “the upward momentum that allowed the crossing of the zone of resistance dating from October 2017 is indisputably a positive signal for the index of the Paris Bourse. The upward alignment of the 17- and 40-week moving averages accompanied by a rise in the MACD argues for a continuation of the momentum (of dynamics, Ed). The year 2019 has been, against all odds, an exceptional vintage with more than 25% increase to date, “says Laurent Albie, manager at Next Momentum.
However over a shorter time horizon, “the market is overheating and profit taking is more and more tempting on these levels. The area of 6,000 points, which is only 2% of current prices plays the role of magnet and we can assume that this goal is in the minds of all investors. But whether the CAC 40 is there or not, a correction is in any case imminent. With 13.6% performance since August 15 and 9% since October 3, the Paris index is now very vulnerable, “says the expert.
In a way, this correction is expected and is healthy, he believes however. “A pullback would allow a new stream of buyers to enter or strengthen their positions. The old zone of resistance between 5700 and 5500 points could become a new support and thus boost the upward momentum. In this case, the new targets would become 6,050 and 6,300 points, “he says. Only the breaking of the 5.400 points would invalidate this positive scenario.
Evolution of the CAC40 and technical analysis (click on image to enlarge)
To monitor the downside risk of equity markets, we can also monitor the VIX, commonly known as the “fear index” (it measures the volatility of US equities, which tends to evolve in the opposite direction of stock prices, Ed), who recently found his 2 year lows.
“Pressured downward by the exacerbated complacency of the operators, it is now in a situation of waiting on a historical support. As long as the latter remains calm, the appetite for risk continues. In case of a strong increase, we would talk gradually about stress, then fear or even panic. In the short term, a break of 14 points would be a first signal, in the medium term a rally of 20 points would mean the return of sellers and downside attacks on indices, “warns his side Nicolas Chéron, head of market research at Binck. fr (Saxo Bank Group).
Evolution of VIX and technical analysis (click on image to enlarge)
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