CAC 40 index formed a double-top pattern. Is it a good buy?
The CAC 40 index recent rebound has faded amid concerns about the Federal Reserve and the health of the European economy. The index, which is made up of leading blue-chip companies in France, declined to €6,495, which was lower than this month’s high of €6,605.
France stocks retreat
The CAC 40 index has pulled back for several reasons. First, there are concerns about the health of the European economy as the energy sector faces significant strains. For example, on Friday, Russia announced that it planned to carry out maintenance on a key natural gas pipeline to Europe on August 31st.
Analysts believe that the maintenance is not necessary and is a way for the Russian government to punish Europe for its support of Ukraine. While France has vast nuclear energy plants, it will be hurt because it also relies on Russian natural gas substantially.
Additionally, many CAC 40 constituent companies have significant operations in other European countries like Germany and Italy.
The index also retreated because of last week’s Federal Reserve minutes. Fed officials expressed concerns that inflation could get entrenched in the country. At the same time, they worried that they were hiking interest rates too fast.
Therefore, analysts believe that the Federal Reserve will hike interest rates by 0.50% in September followed by several more in the following months. Higher Fed rate hikes have a negative impact on global indices like the CAC 40 and the DAX index.
The index has also reacted to the recent earnings season. Most French companies expressed concerns about the impact of higher inflation on their businesses as earnings disappointed.
Sanofi, Vivendi, Eurofins Scientific, Michelin, and Teleperformance are the worst performers in the index in the past 30 days. On the other hand, the best performers are firms like Worldline, Hermes, AXA, Stellantis, Renault, Engie, and Credit Agricole. All these shares have risen by over 10%.
CAC 40 forecast
The four-hour chart shows that the CAC index found a strong resistance at €6,590. It struggled to move above that level several times since June. As a result, it has formed what looks like a double-top pattern and moved slightly above the 25-day and 50-day moving averages.
The Relative Strength Index (RSI) has declined slightly below the neutral point of 50 while the awesome oscillator has declined below the neutral point. Therefore, the index will likely continue falling as sellers target the next key support at €6,350.
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