Technical Analysis FR40 : 2016-07-29

French stocks recover after Brexit
FTSE 100 stock market index recovered most of the sharp loss following the UK referendum decision to leave the European Union. The consumer confidence declined in June, while Services PMI for July indicated expansion in services sector. And Manufacturing PMI indicated contraction in manufacturing in July. Will the CAC 40 index continue rebounding?
France’s CAC 40 has gained more than 8% since June 24 recovering most of the sharp loss after Britain voted to leave the European Union. The consumer confidence indicator in June edged down in line with market expectations to 97 points from 98 points in May, an over-nine-year high. The consumer confidence index reflected more pessimism about employment prospects. Industrial production in May declined 0.5% over the previous month after a 1.2% expansion in April. The contraction in industrial production resulted from a fall in construction while manufacturing posted no growth as oil refineries were kept idle during labor union strikes against unpopular labor reforms. The government passed the labor reform law which makes it easier to lengthen working hours, reduce worker severance pay and weaken the unions’ power. The reform is expected to contribute to growth in medium term, boosting economic activity in the aftermath of the Brexit vote. Consumer prices in June edged up 0.1% on month with inflation rising 0.2% on year, the highest rate since January. And the Business Climate Indicator, which measures the business confidence, rose to 103 in July from 102 in June instead of an expected 1 point decline. Nevertheless, the economic growth in 2016 is expected to be impacted negatively by the increased uncertainty after UK’s decision to leave the EU as exports and investments decline as a result. On July 22 preliminary Manufacturing and Serves PMIs for July were released, with showed contraction in manufacturing sector while service expanded. On August 3 June retail sales will be published, which is expected to rise on month and compared with the same period a year ago. On August 10 Industrial Production for June will be released, a growth is expected after a decline in May. And on August 12 July preliminary second quarter nonfarm payrolls will come out, an 0.2% growth in expected after 0.3% rise in previous month.


On the daily chart CAC 40: D1 has been rising after the sharp decline on June 24 following UK’s Brexit vote. The price has rebounded, rising back above the 50-day moving average MA(50) and has breached above 200-day moving average MA(200) and the resistance line. The Donchian channel is tilted upward indicating uptrend. The Parabolic indicator gives a buy signal. The MACDindicator is above the signal line and the gap is rising with the signal line itself above the zero level. This is a bullish signal also. The RSIoscillator is above the 50 level and edging higher but hasn’t yet reached the overbought zone. Bullish momentum may develop if the price breaches above the upper Donchian bound at 4475.61, which can be used as an entry point for a pending order to buy. Risks can be limited by placing the stop loss below the last fractal low at 4302.02. After placing the order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level (4302.02) without reaching the order (4475.61) we recommend cancelling the position: the market sustains internal changes which were not taken into account.
PositionBuyBuy stopabove 4475.61Stop lossbelow 4302.02