- The market has been trading inside a bullish channel from November 2023 to May 2024, taking prices 6750pts to 8260pts ; the long-term trend was then bullish.
- As we approach the end of the trading season (Sell in May and go away), the market, which was already trading at an all-time high, started to consolidate inside a lateral rectangle.
This configuration can be seen as the sign that investors were rebalancing their portfolios and assessing their risk exposure ahead of the summer season.
But quickly the situation turned sour when surprising results from far-right movements in EU parliament elections triggered political havoc in France where president Macron chose to dissolve the National Assembly.
This led to new legislative elections in France where voters had to choose their new MPs.
With such rising political uncertainty in the second Economy of the Eurozone, investors choose to significantly reduce their exposure to stocks, which led the CAC40 index into correction territory.
The reversal double top chart pattern has been validated and the market registered a new market bottom, the first one since November.
The DMI indicator shows a clearly bearish environment while both moving averages are in bearish configuration too.
More recently, the market has consolidated above the 50% Fibonacci level, in a technical price action.
- This is seen as a bearish configuration. The double top pattern is a trend reversal configuration where a 100% correction can generally be legitimately expected.
The results of the FR elections have led to a hung parliament, which isn't the worst outcome for investors, but also doesn't provide much more political visibility in the region.
And with the lack of good reasons to buy, fear trading will likely dominate for the next few weeks.
The next targets can be located around 7,330pts (61.8%), 7,075pts (78.6%) and even lower.
Pierre Veyret, Technical Analyst at ActivTrades
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