CAC 40: Confirmation of the entry into the high aerobatic phase

(News Bulletin 247) – First phase of intense protest rebound yesterday on the Paris Stock Exchange, where its flagship index the CAC 40 jumped by more than… 7%! (+7.13% precisely at 6,387 points), in very powerful volumes. Banks, luxury and automotive, sectors which had initially suffered the most from the start of the Russian invasion in Ukraine, led the dance: in the radius of outperformance yesterday quoted Hermès (+ 8.33% to 1,170 .50 euros), Kering (+8.52% to 580.80 euros), Crédit Agricole (+9.07% to 10.716 euros), LVMH (+9.54% to 602.60 euros), Michelin (+9 .80% to 114.85 euros), BNP (+9.95% to 51.42 euros), Renault (+11.12% to 23.68 euros), Societe Generale (+11.53% to 23.50 euros), or even Stellantis (+ 11.90% to 14.498 euros).

However, the situation in Ukraine remains dramatic and hopes for a short-term ceasefire remain slim. Simply, the rebound, as spectacular and intense in absolute value as it is, only very partially retraces the initial decline since February 21; it is the result of a return of energy after a powerful selling movement, the rubber band having been pulled too hard, to use a trivial image. This Thursday marks the end of a new Board of Governors of the European Central Bank (ECB). And this will be an opportunity to dive back into the dilemma currently facing the major central banks.

If on the side of the Fed the equation is probably less complex, it is the question of the angle of the monetary turn to come that arises. While a 50 bp increase in Fed Funds was almost unanimous not long ago, an increase of only 25 bp is the scenario now clearly envisaged, by J. Powell himself in a half-yearly hearing before the Parliamentarians. First elements of response on March 16 at the end of the FOMC (Monetary Policy Committee).

“For the ECB, which is holding its monetary policy meeting this week, the situation is more complex”, according to T. GIUDICI, “because the zone is more directly impacted by the Russian-Ukrainian situation. If the insinuations (and the non- said) by Christine Lagarde in February were campaigning for a more hawkish ECB, she could finally catch up with the branches of the December decisions which provided for an increase in the APP (to compensate for the PEPP) until the end of the year before a possible first rate hike in 2023.” First elements of response this Thursday at the end of the Board of Governors.

In terms of statistics, once again relegated to the background yesterday, the new job vacancies (JOLTS) once again highlighted signs of tension on the employment front, a sign to which the Fed is paying close attention, in as a leading indicator of inflation.

On the other side of the Atlantic, the main equity indices rebounded strongly, admittedly less than their European counterparts, like the Dow Jones (+2.00% to 33,286 points) or the Nasdaq Composite (+ 3.59% at 13,255 points). The S&P 500, the benchmark barometer of risk appetite in the eyes of fund managers, gained 2.57% to 4,277 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 $1.0920. A barrel of WTI, one of the barometers of risk appetite in the financial markets, was trading around $126.00.

To follow as a priority, on the agenda this Thursday, the ECB press conference at 2:30 p.m. following the Board of Governors (monetary policy decision at 1:45 p.m.) and for the United States, the various indices of consumer prices and weekly registrations for unemployment benefits at 2:30 p.m.

KEY GRAPHIC ELEMENTS

The 6,760 points, which we have identified so far as a gradually weakened floor, gave way, on a wide gap on Thursday 02/24, opening the way to a new market phase. Recall that the index traced from February 16 to 18 a combination of candles in three crows. This combination was immediately followed by a very significant bearish engulfing structure, accompanied by volumes that were far from timid for a session, let’s not forget, without American benchmarks due to a public holiday. The last phase of weakening of the aforementioned support will therefore have been aggressive. Friday 25/02’s pullback was surgically precise.

A phase of high volatility has thus begun. The school marubozu drawn on Tuesday 01/03 is a first step. Second stage Friday 04/03 with a candle of the same type (opening on the high points, closing on the low points) in even more fed volumes.

A new bearish leg opens under 6,000 points, broken on Monday 07/03, before the formation of a contested rebound. Until then, a short moment of capitulation across all sectors and value styles is not excluded. On Wednesday, March 09, we witnessed a first phase of an explosive protest rebound, which pushed the index back to its 100-hour moving average (in orange in hourly view), a curve that retains a marked downward bias.

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 6385.00 points.

Hourly data chart

Chart in daily data

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