The stars finally seem to be aligning favourably for the European stock market. Most states within the EU have started to reopen their economies, which allows for the general economic activity to begin normalising gradually. There are also positive indications for the swift development of a drug for COVID-19, as well as a vaccine for treating the SARS-Cov-2 pathogen. Both of these developments are needed for the eventual overcoming of the health crisis.
Finally, after the recent announcement that France's Emmanuel Macron and Germany's Angela Merkel have reached an agreement to raise common debt of 500 billion euro in order to support the jolted fragments of the European industry, the markets received yet another reason to remain optimistic. Investors can now believe that the EU stands fast amidst the coronavirus crisis with a clear roadmap for overcoming the present tribulations.
In line with all of these positive developments, European stocks have also begun to stabilise, with some market experts anticipating the continuation of the current bullish correction. Some of the more optimistic forecasts even project the bullish run to invalidate the losses that were accumulated in the early days of the market crash.
For today's analysis, we have opted to examine the price action of the French CAC 40 composite index, which is one of the flagships of the European stock market, and to highlight what such a path to full recovery may look like.
1. Long Term Outlook:
As can be seen on the weekly chart below, the pitchfan tool is used to measure the scope of the recent market selloff, and thereby to underpin the most crucial price levels in an eventual recovery. The first major cue signifying the termination of the selloff is the bounce of the underlying price action back up into the middle territory of the pitchfan (in light green) over the last several weeks.
The recent consolidation commenced after a turbulent retracement of the price action back above the downwards sloping trend line that separates the lowest segment of the pitchfan from its middle ground. This is the most substantial confirmation for the likely beginning of a new dominant bullish run.
CAC 40 1W Price Chart. Image source: Trendsharks ©, created with TradingView.com
The current consolidation range has two distinctive limits. The major resistance level at 45.00 represents its upper boundary, and the 23.6 per cent Fibonacci retracement level at 41.415 represents its lower boundary.
It should also be noted that the former coincides almost perfectly with the 38.2 per cent Fibonacci retracement level (it is not explicitly plotted on the chart above), which makes the level an even more prominent resistance. Furthermore, the 45.00 level has already acted as a significant turning point for the underlying direction of the price action, as highlighted by the first green rectangle. The prominence of the level is thereby bolstered even more by the fact that this first reversal delineated the lowest limit of the aforementioned pitchfan.
Hence, the price action is going to struggle to break out above the major resistance level at 45.00 –there have already been several failed attempts over the last few weeks. However, if it succeeds in doing so, this would be yet another considerable evidence of rising bullish sentiment in the market. On the other hand, failing to do so would be illustrative of diminishing buying pressure in the short term, and thereby signify the renewed headwinds for the index.
The Stochastic RSI favours the establishment of an imminent breakout, as it indicates rising buying pressure in the market. Should the price action manage to break out above the pivotal 45.00 level, its next logical target is going to be the 61.8 per cent Fibonacci Retracement level at 50.680. Its importance is further bolstered by the fact that it coincides with the pitchfan's middle trend line. Conversely, a breakdown below the 23.6 per cent Fibonacci retracement level at 41.415 is going to represent a substantial indication for rising selling pressure in the market and potential continuation of the preceding selloff.
2. Short Term Outlook:
CAC 40 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the daily chart above, the bullish correction that was initiated at the lowest part of the preceding crash resembles a classic 1-5 impulse wave pattern, postulated by the Elliott Wave Theory. Judging by that, a final 4-5 impulse leg is likely to form, which could propel the price action above the major resistance level at 45.00.
The ADX is currently threading way below the crucial 25 points threshold, which confirms the condition of the aforementioned consolidation range. It also favours the execution of swing trading strategies while the price action remains confined within the range's boundaries.
However, swing traders should not forget that the market is bracing for a new attempt at breaking out above the aforementioned resistance, so a new and definite trending environment could promptly substitute the range-trading condition of the market. The appreciating Stochastic RSI, which demonstrates rising buying pressure in the short term as well, supports these anticipations.
The Fibonacci resistance fan on the 4H chart below confirms the rising bullish momentum in the short term, with the price action recently bouncing back up from the fan's 38.2 per cent level. The price action is currently consolidating above the fan's 23.6 per cent retracement level and the aforementioned major resistance at 45.00, which attests to the final stage in preparation for a new and decisive break out further north. However, it remains to be seen whether all of the observed bullish commitment in the market is going to be enough for achieving the goal at hand.
CAC 40 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
3. Concluding Remarks:
Most of the underlying fundamentals seem to favour the continuation of the CAC 40's price action further north. The observed technicals are also congruent with such expectations; however, the possibility of intermediate downswings forming to or below the major support level at 41.415, represented by the 23.6 per cent Fibonacci retracement level, should not be ignored by traders.
Profit & Loss
Journal Entries
May 28, 2020 - Entry 1
CAC 40 1H Price Chart. Image source: Trendsharks ©, created with TradingView.com
- Overall, excellent trade. The price started to appreciate almost immediately after the publication of the analysis, as per the initial expectations. It, however, failed short of the initially projected resistance level at 50680.00. This highlights the need of using floating stop losses, to protect the underlying position against sudden changes in the direction of the price action. Sometimes, the floating stop-losses are going to cut the running profits short, but others they are going to enhance them, as is the case above. That is why each trader needs to determine for himself under what conditions to implement them, depending on his level of risk-aversion.
Disclaimer: Your capital is at risk! Trading and investing on the financial markets carries a significant risk of loss. Each material, shown on this website, is provided for educational purposes only. A perfect, 100% accurate method of analysis does not exist. If you make a decision to trade or invest, based on the information from this website, you will be doing it at your own risk. Under no circumstances is Trendsharks responsible for any capital losses or damages you might suffer, while using the company’s products and services. For more information read our Terms & Conditions and Risk Disclaimer.
Over the past few weeks, the USD has lost nearly 800 pips against the JPY, driven by Japan's shift away from decades of negative interest rates. With the Bank of Japan raising rates for the second time in a row, investors are adjusting their positions to [...]
Despite its volatility, Silver remains in an uptrend. While not as dynamic as Gold, XAG often mirrors XAU’s movements. A Multiple Top has formed around $32.50, and history shows that the more a level is tested, the weaker it becomes, increasing the likelihood of a [...]
A combination of factors, including Trump-era tariffs, the emergence of DeepSeek, and a slowdown in GDP growth, has contributed to the recent pullback in the US30 from its record highs. From a technical standpoint, a Double Top pattern has formed around the [...]
Over the past month, Silver has experienced an impressive 13% surge, marking a strong bullish trend. Despite notable volatility and multiple pullbacks, the overall momentum remains firmly to the upside. This strength is further validated by the Golden Cross, a historically reliable [...]
The Swiss Stock Market has been on a remarkable rally, surging over 15% between December and January. At times, the price action resembled a near-vertical ascent. However, following the announcement of Trump’s tariffs over the weekend, Monday’s trading session opened with a [...]
Between October and January, GBPUSD experienced a significant decline, dropping by approximately 1300 pips. However, we now observe signs of a potential trend reversal. Over the past few weeks, the pair has rebounded by more than 400 pips, shifting momentum toward a [...]
For the past 1 month, the UK100 saw a fantastic 600 point rally! The occasional corrections only attracted more buyers, which is healthy for the current up trend and the RSI currently exhibits elevated demand. A 130 point correction started last week on Friday, dipped below the [...]
Over the past two weeks, Japan’s leading stock index surged 2,000 points, reflecting strong bullish momentum. However, this week saw a sharp sell-off, erasing nearly all gains since mid-January. Despite this drop, the decline stalled at the 61.8% Fibonacci retracement, a key [...]
There is a clear shift in the momentum in the Oil market, with the commodity dropping with nearly 10% for the past 2 weeks. The Death Cross, a classic sell signal, is indicating that sellers are indeed in control and we are lookin now at a strong [...]
The 350 pip rally for the past 2 weeks seems like a trend reversal for EURUSD, with buyers back in control. The strong bullish momentum is also confirmed by the Golden Cross, a historic buy signal. Corrections are healthy for the trend and we currently looking at [...]
For the past 2 weeks GBPUSD went up with 400 pips and this is why we believe we might be looking at a trend reversal. The strong bullish momentum is confirmed by the Golden Cross, a classic buy signal, which supports the hypothesis that [...]
The Death Cross formation in USDJPY signals a robust downward momentum, with the USD depreciating by 300 pips over recent weeks. Further declines exceeding 300 pips are anticipated, potentially reaching the 152.00 level. Despite several corrective pullbacks, the price has been unable to surpass the [...]
Following the formation of a Double Top pattern at the 21,930 level last Friday, the NASDAQ has experienced a significant decline, plummeting by nearly 800 points. This downturn has been primarily driven by unfavorable manufacturing data emerging from China, alongside the Bank of Japan's interest rate hike on Friday. The market reaction closely resembles the [...]
GOLD's uptrend has regained strength, with several factors supporting further gains. The RSI bounced from oversold levels and now stands at 65, signaling growing demand and increasing buying volume. Additionally, the appearance of a [...]
For the past few months, USDJPY gained 2100 pips! Then, about 10 days ago the USD started dropping and so far corrected with 300 pips, dropping down to 155.00. A local Double Bottom got formed and this level also aligns with the important [...]
For the past week, the US100 has surged by over 1,000 points, signaling strong bullish momentum. The RSI stands at 69, indicating high demand and buyer dominance. A bullish Golden Cross pattern has emerged, confirming the upward trend. Despite a brief correction yesterday, with the index dipping to [...]
The Descending Triangle on the 4-hour chart, typically a bearish signal, failed to materialize this time. Instead, the Triple Bottom support at 92,000 held strong, driving significant buying volume. A Golden Cross—a classic bullish indicator—confirms strong [...]
After a 300-point correction from its December highs, the SP500 appears to be rebounding as bulls regain control. This recovery is supported by positive economic data, including strong NFP numbers, low unemployment, and CPI readings meeting expectations—all favorable for stocks. Additionally, the earnings season began yesterday with [...]
For several months, the EUR has been trending downward, losing hundreds of pips. While occasional corrections to the upside occur, bears remain in control. The strong downward momentum is highlighted by the Death Cross pattern, a classic sell signal. Yesterday, we observed another [...]
The Dollar remains strong, with buyers firmly in control since the Fed's December comments hinting at fewer 2025 rate cuts. This drove a 400-pip rally in USDCAD, now facing resistance near 1.4450 as early buyers take profit. Corrections are part of healthy trends, and the pair is testing support at [...]
Today is CPI day, and technical analysis often falters on major news days. Nevertheless, here's our take on the US Tech 100: we anticipate a potential drop of 800-1,000 points. December's Fed comments triggered a selloff, with bears dominating the index for weeks. The strong downward momentum aligns with [...]
