CAC 40: Observing the next gaps will be crucial

(News Bulletin 247) – New session of price contraction on Thursday for the CAC 40 index (-1.53% to 5,676 points), which has accumulated losses of 20.64% since the start of the year. More than ever, the prospect of a tightening of European monetary policy weighs on risky assets, especially since German inflation, published yesterday, exceeded the highly symbolic threshold of 10% (the most broad, annual rhythm). Double-digit inflation across the Rhine which is the first in 20 years.

This new surge in inflation in Europe’s largest economy should prompt the European Central Bank to tighten its key rates even more. Some members of the institution are campaigning on their side for a sharp rise in key rates, just like some of their American counterparts. Several officials of the US Federal Reserve have in fact come out in favor of continuing to raise key rates. Including St. Louis Federal Reserve Chairman James Bullard known for his “hawkish” positions. He campaigns for appropriate responses to inflation that is still out of control, even if it means tipping the American economy into recession.

Precisely in terms of statistics, the big event this Friday is the publication of US inflation for the month of August (CPI and above all PCE, the flagship measure of its appreciation for the Fed). The consumer price indices for the Euro Zone, in very first estimates for the current month, will be published at 11:00 am.

But “although the treatment inflicted by central banks is painful, it seems a necessary evil in order to hope to avoid the triggering of self-fulfilling effects on inflation”, argue the strategists of La Financière de l’Échiquier.

In terms of values, automotive suppliers once again suffered very strong releases, enormously amplifying market variations, such as Valeo (-8.79% to 15.245 euros), Plastic Omnium (-13.25% to 13.23 euros) and Faurecia (-14.71% to 10.87 euros). The retirement home manager Orpea saw its share price plunge by more than 21%, after the publication of the accounts for the 1st half, weighed down by asset write-downs.

On the other side of the Atlantic, the main equity indices once again fell sharply, especially on the pan Growth on the side. If the Dow Jones lost 1.54% to 29,225 points, the Nasdaq Composite suffered much stronger releases, from 2.84% to 10,737 points. The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, fell 1.53% to 5,676 points.

A point on the other risky asset classes: around 08:00 this morning on the foreign exchange market, the single currency was trading at a level close to $0.9660. The barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $81.50.

KEY GRAPHIC ELEMENTS

The symbolic 6,000 points were broken under validating conditions of volume and volatility, and the new work zone identified between 5,785 and 6,000 points will have been crossed in one go last week. At this stage, the possibility of a technical reaction will take shape. We lacked the materialization of the conditions for its implementation.

We mentioned Monday morning the possibility of a candle in harami or sharp downward acceleration from the start of the session. It is actually in “inverted hammer” which comes to give us a signal of the same nature. Unfortunately it was not validated by the next candle, red and without any lower shadow. Only the ability to close above the September 26 highs would reinforce the idea of ​​the rapid development of a technical rebound. We are not there yet.

It is now the observation of gaps (common, shortness of breath), which will be essential to “timer”, if necessary, the birth of a short movement of capitulation.

FORECAST

In view of the key graphic factors that we have mentioned, our opinion is negative on the CAC 40 index in the short term.

This bearish scenario is valid as long as the CAC 40 index is trading below the resistance at 5785.00 points.

Hourly data chart

Chart in daily data

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