This would suggest that the issues currently facing Europe isn't one that is short term in nature but rather long term. Issues such as a declining tax base, a shift away by manufacturers to countries where cheaper labour and higher productivity is found, an aging population, over reliance on the social state and much more all contributing to the list of problems mounting up.
French political thought is currently leaning towards socialist policies that advocate a higher participation by government in the decisions made for its citizens. The nation's tax rates is amongst the highest in the Eurozone with government actively targeting the rich to fund their generous social expenditure to the point that many have been driven away from the country in search of tax refuge causing a mark of weariness regarding fiscal stability.
However its fair to say that the companies represented in this index have a considerable reputation worldwide but its important to note that although these companies may have been born from French origins their revenues and profits are heavily weighted outside the country giving them a globalised feel about them. Looking through the list one can easily recognize a number of companies that stand out as quality;
- Danone
- Renault
- Societe Generale
- Michelin
- Total
- L'Oreal
- Peugeot
- Airbus
Let us begin with our analysis:
Monthly
I've drawn several trend lines and numbered them according to their priority to my analysis the first being the long downtrend that has been persistently in place since late 2000 which immediately caught my attention as the previous indices we've analysed have seen their highs happen in the years before the Financial Crisis. This chart marks those highs going as far back as the I.T Bubble!!!
The second lower high happened around the Financial Crisis sending the index back down to it's long term lateral support just under 2500. These levels have been tested 3 times in the last 15 years and have acted as a strong catalyst for bulls to drive prices higher.
Going onto to trend line number 3 and we see that we are at a critical junction where the price needs to pick up pace or risk breaking the primary uptrend that's been in place since 2012. My concern for this chart is we've seen the highs of the current primary uptrend reach the secular downtrend and fail dismally, inflicting damage on an important technical level.
Looking at the Stochastic it appears to have formed a cup and handle pattern that's about to break downwards indicating that the trend in place could be reinforced for a while and we could see further lows tested. The RSI is slowly slipping beneath the 50 mark and upon close inspection if you observe every time this has happened price has suffered from a steep drop. Both these indicators point to weakness in the near term that could be brought on from the turn in tide against stocks residing in the Banking and Financial Sector.
Weekly
Assessing the condition of the primary uptrend I needed to zoom into the weekly to get a closer look at how things are developing under the surface. The uptrend I had spoken about has been broken which isn't a good sign with the current price testing the underside on the trendline. The cup and handle formation confirms the topping environment that global equity markets are experiencing at the moment and if we were to use this evidence against the backdrop of the secular downtrend in place on the monthly we see the large degree of confluence between the two technical levels.
We've seen the price bounce back strongly after a series of red candles that broke past the neckline of the cup and handle pattern. This says that the pattern and its target are now in progress and should use any further upside as an opportunity to sell. Price lies underneath the 50 SMA adding further bias to the downside
That wraps up another week of Travelling Technicals, I hope you were able to learn something new from the chart I provided above and it gives you some insight into the potential storm financial markets could be headed into. If you would like to ask a question you can do so via email at cadetrader@gmail.com I always appreciate feedback and look forward to hearing from you all. Until next time.
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