Cac 40: testing a large support zone, index trading strategy

The evolution of stock indices and investor sentiment is based on both company performance and macroeconomics…and technical factors.

And the observation that can be made on this last point is that the Cac 40 is back in touch with the main technical area, a support that has already been tested during the acute stress phase of the first quarter, a few days after the launch. invasion of Ukraine. This oblique support originates from the old highs of 2015 and 2017 and has since been tested repeatedly in 2018, 2019 and 2021.

This former resistance has acted as a support zone since March and is currently at 5850. Just below there are also two main technical levels, one formed by the old highs of 2010 and 2011 (currently at 5600 points), and the other originally formed by the lows of 2011 and 2012 and going slightly below 5700 points. Currently. Thus, the area between 5,600 and 5,800 points is especially tight from a technical point of view and represents an interesting repositioning point for medium and long-term investors, especially after a major correction, the causes of which are diverse: inflation and monetary normalization, geopolitical crisis and macroeconomic factors. slow down.

If this technical zone seems to be of real interest over time, in particular with the Cac 40 index currently “paying” more than 11 times the profit, the behavior in the coming weeks will be much more uncertain. Consumer confidence in France has fallen to its lowest level since 2013 and in Germany is heading towards levels of weakness not seen since the measure was introduced over 20 years ago… Geopolitical uncertainty remains the biggest threat at this juncture and clearly carries recessionary risks . for the eurozone, especially if gas supplies are interrupted by next winter. For now, the ECB and several European leaders are ignoring this risk, but their scenario does not include a complete shutdown of energy supplies from Russia…

The latest statements this week from the presidents of France and Ukraine suggest that they are counting on progress, which can be seen on the horizon in a few more months, but with the possibility of a decision by the end of the year.

The corporate reporting season that opens in July will be crucial to the trend: investors have already adjusted prices heavily due to macroeconomic uncertainty and central bank monetary normalization, but uncertainty is important in relation to the microeconomics. The goal is obviously to see how corporate results have changed in the context of rising wages, rising commodity prices and persistent supply constraints (China has largely “deconfinemented”, but it will take a few more to normalize caused by disruptions in logistics. months).

However, a change of note: the fall in commodity prices in June was quite marked, affecting oil as well as industrial metals and even some agricultural commodities. This allowed rates to stabilize slightly and triggered a recovery in stock markets in mid-June.

So far, investors have seen a “glass half full” commodity downturn, i.e. cushioning effect on inflation and expectations. But be careful lest they start to see “the glass is half empty” when falling commodity prices would be a translation of a severe global economic downturn…

This uncertainty may continue to keep Cac 40 close to this large support zone described above. However, if we move lower (i.e. below 5600 points), then this should not signal a new wave of sustained decline, but rather the exhaustion of the downtrend that has taken place since the beginning of the year, and therefore a temporary intrusion that would mean a form of capitulation to recovery. However, for those who work more in the direction of the trend, it seems more reasonable to wait for a return to the 6500/6600 zone in order to confirm the change in sentiment and bury the risk of a relapse.

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