In recent months, the French stock market has experienced significant volatility, particularly in response to political news. This has led to a notable decline in the CAC 40, the primary benchmark, with a correction of almost 10% since its peak in March. Despite this pullback, there are indicators suggesting that a primary uptrend is still intact for the CAC 40 and the iShares MSCI France ETF (EWQ). Both of these proxies for French stocks are showing signs of stabilizing, which could indicate a positive response from the market to the latest election news.
As the final outcome of the election becomes clearer, investors may react favorably to the removal of uncertainty, especially given the oversold status of French stocks. While the CAC 40 has underperformed compared to the S & P 500 Index for over a year, there are indications that the ratio may have reached unsustainable levels to the downside. Short-term indicators are showing signs of downside exhaustion, and the resistance at the downtrending 200-day moving average is significantly higher than current levels. This could pave the way for a potential phase of outperformance for French stocks compared to U.S. stocks.
A long-term uptrend can be observed in the U.S.-listed EWQ, as indicated by the cloud model. The model suggests that there is support near $36.80, above which the cyclical bull trend that started in 2022 could remain intact. Furthermore, the cloud model projects a rise through year-end, indicating that the long-term uptrend is likely to persist. Recent stabilization in many French stocks is a positive sign, with the weekly stochastic oscillator showing intermediate-term oversold conditions. This rebound in short-term momentum could serve as a technical catalyst for a potential recovery in the market.
One of the largest holdings in EWQ is LVMH Moet Hennessy Louis Vuitton (LVMUY), which accounts for approximately 11% of the ETF. LVMUY is showing signs of downside exhaustion near crucial support levels, suggesting a potential rebound that could benefit French benchmarks. Additionally, TotalEnergies (TTE), a French energy giant, has received an intermediate-term oversold ‘buy’ signal, indicating that its correction phase may have reached maturity.
It is essential for investors to consider seeking advice from financial or investment advisors before making any significant financial decisions. The content provided here is for informational purposes only and should not be taken as financial, investment, tax, or legal advice. Each individual’s unique circumstances must be considered before making any financial moves.