CAC 40: Beware of the formation of a reversal island

(News Bulletin 247) – This article, with open access, is produced by the stock market analysis and strategy research team at News Bulletin 247. To ensure you don’t miss any opportunities, consult all the analyzes and discover our portfolios by accessing our Privileges area.

The CAC 40 (-0.39% to 6,986 points Tuesday) should open in the red this Wednesday, against a backdrop of increased caution in the run-up to a speech by J Powell, President of the Fed. He is scheduled to deliver a keynote address at the Division of Research and Statistics Centennial Conference in Washington, DC. The opportunity to find out more about the Institution’s intentions even though bond yields fell significantly at the end of last week, in particular thanks to the publication of the report on private employment.

The flagship Parisian index should therefore open well below the symbolic threshold of 7,000 points, which as a reminder constitutes the technical issue of the week. Note that a reintegration of this threshold on Friday at the end would give a surplus of oxygen. Conversely, a close below would rhyme with continued selling pressure.

Not much to eat since the start of the week in terms of macroeconomic publications. The producer price index in the Euro Zone came out perfectly on target. We will also note the publication, a few moments ago, of a slightly heavier deficit than expected in the trade balance for the month of September (-$61.50 billion).

In China, the latest statistics have highlighted a weakness in foreign trade. According to figures released by the country’s customs on Tuesday, exports fell 6.4% year-on-year last month, while the consensus expected a less pronounced drop of 3.5%. “Chinese exports are suffering from the “slowdown in economic dynamics in the United States and Europe,” commented Zhang Zhiwei, economist at Pinpoint Asset Management cited by AFP and who continues “that external demand would probably remain weak in the months future”.

On the value side, the technology sector helped limit the damage, with the support of OVH (+2.15%), Atos (+2.91%), CapGemini (+2.52%) and Teleperformance (+3 .71%), which nevertheless once again revised its revenue forecasts downwards.

On the other side of the Atlantic, the main equity indices once again closed in positive territory on Tuesday, like the Dow Jones (+0.17% to 34,152 points) but especially the Nasdaq Composite (+ 0.90% to 13,639 points). The S&P500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 0.28% to 4,378 points.

An update on other risky asset classes: around 8:00 a.m. this morning on the foreign exchange market, the single currency was trading at a level close to $1.0680. The barrel of WTI, one of the barometers of the appetite for risk on the financial markets, was trading around $77.30.

On the agenda this Wednesday, priority will be given to retail sales in the Euro Zone at 11:00 a.m. and a speech from J Powell, President of the Fed, at 3:15 p.m. (Paris time).

KEY GRAPHIC ELEMENTS

The technical situation on the CAC 40 is quite readable: the index came out of a flattened diamond (diamond) pattern on September 25, which pushed the market into the red. Two pullbacks later, it was the turn of the symbolic threshold of 7,000 points to suffer the threat of prices, a threat put into effect on October 18, 19 and 20 in increasing trading volumes.

After the formation of a congestion figure near 6,800, the past week will have been the scene of a significant technical reaction, orchestrated and amplified by the values ​​which had initially been the most mistreated. This energy, exhausted early, should give way to a rapid filling of the gap of November 2, just below the key threshold of 7,000 points.

This gap is practically filled. Be careful, however, of the possibility of an island of overturning (reversal island), isolating the last 4 candles, in the event of the formation of a bearish gap today.

FORECAST

Considering the key graphical 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 below resistance at 7000.00 points.

Hourly graph

Daily Data Chart