The CAC 40 suffered its worst one-day loss of the year so far on Monday, with the leading French index dropping by nearly 2.5 percent over fears about the new COVID-19 Delta variant and fresh lockdowns.
CAC40 bulls are now in retreat after being largely in charge since January this year and taking the index to a new all-time price high, around the 6,887, after taking out the former all-time high in April this year, around 6,150.
Faced with the prospect of new lockdowns and travel restrictions a number of the heavyweight stocks in the CAC40 crumbled earlier this week, and remain vulnerable to further heavy losses, despite yesterday’s recovery.
Airbus and Aeronautics where amongst the worst effected, while shopping centres such as Unibail-Rodamco-Westfield suffered the heaviest losses. Biotech company Valneva bucked the trend and advanced as it is currently in trials over COVID-19 vaccines.
In terms of technical, the CAC40 is vulnerable to further heavy losses given the that the index is relatively overbought and has plenty of scope to correct on further profit taking from investors.
Looking at the ActivTrades Market Sentiment some 91% of traders are bullish towards the leading French index, despite the index suffering its worst one-day loss of the year and the French economy remaining vulnerable to further harsh lockdowns.
I suspect the CAC 40 will continue to head lower while sentiment towards the index remains extremely bullish. Typically, retail traders have poor market timing and lean against the short-term market trend.
CAC 40 Short-Term Technical Analysis
The four-hour time frame shows that a bearish breakout from a head and shoulders pattern has taken place and is projecting an upcoming drop towards the 6,000 support levels.
According to technical analysis buying price dips towards the 6,000 or 5,950 support areas is probably risk because bearish MACD price divergence extends down towards the 5,800 level.
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CAC 40 Medium-Term Technical Analysis
Looking at the higher time frames the daily chart continues to show plenty of scope for further losses, with the former all-time high, around the 6,150 level, a key technical area to watch.
As long as the price trades above the 6,150 level then a bullish breakout from a head and shoulders pattern is underway. Dip buyers may attempt to buy around the 6,150 level.
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However, if COVID-19 fears continue a deep decline under the 6,000 level could take, so dip-buying is a risk proposition while the market is in risk-off mood.
