French Stocks Encountering A ‘Piece De Resistance’
France’s CAC-40 may find its pace of advance slowed by a former key line of support.
Among the many areas of the market that have responded
positively following the U.S. presidential election has been the previous (and
perpetual) laggard, Europe. This has
included ”winners” like markets from the northern part of the continent as well
as members of the core, like Germany and France. It is the French CAC-40 Index that makes our Chart Of The Day today.
Back at the end of July, we posted a chart noting that the
CAC-40 was encountering potential resistance on its chart, namely the post-2015
Down trendline. We suggested that, while the
trendline should offer a stiff challenge, if the index was able to surmount the line, it could supply a nice pop for French stocks.
Well, after a brief rejection, the CAC- 40 was indeed able to climb above the trendline. However, the aforementioned
“pop” was quite paltry as the CAC-40 would move straight sideways for the next
four months.
Judging the action in the index since the trendline break,
it is apparent that the horizontal resistance representing the pre-breakout
highs of 2014 as well as the highs from March-April of last year (which
signified the 50% retracement of the 2015 to 2016 decline) offered the more
consequential resistance than the post-2015 Down trendline. And it wasn’t until early December that
prices were finally able to surmount that horizontal resistance. In the month since, that CAC-40 rally has
accelerated, along with the rest of Europe.
In the first few days of 2017, however, the index finds
itself bumping up against a potential inhibitor to this newfound rapid rate of
advance. Specifically, but it is the
underside of the post 2011 Up trendline.
This trendline stems from the lows in September 2011 and
connects the (Draghi) low in the summer of 2012 as well as the lows in October
and December 2014 and August-September 2015. The CAC-40 finally broke the
trendline at the beginning of 2016. As the saying goes, support becomes resistance, and this was the case at those March-April 2016 highs. The recent acceleration has the index testing the bottom of
that trendline once again.
This in no way is to suggest the rally in French stocks is over. Indeed, there appears to be plenty of room to
the upside in the CAC-40 and many other European bourses, should they be
inclined to continue their ascent.
However, given the potential resistance posed by the post-2011 Up trendline, the pace of the advance should be more contained than what we
have witnessed over the past month. Of
course, should the index convincingly break above the trendline, a more rapid
rate of ascent is possible. However,
that would not be our prediction nor our playbook until such a breakout
occurs.
In sum, this trendline may not exactly be a “Waterloo” for
French stocks, however, it may serve as a governor on the pace of their advance.
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Painting is the Battle of Waterloo by William Holmes Sullivan.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
