CAC 40 target remains intact

Price at time of writing – 4335.

In October 2013 I began covering France’s CAC 40 with a strong buy recommendation.

When I made this recommendation, the index had just broken above its key resistance, centred around the G2 level and defined as a tight band 4170-4180. This break allowed me to project forward to a major target at 4930, upon which a 100% rise from the unique low in March 2009 would be complete. This target, and my recommendation, remains intact today.

Last October’s breakout on this previously underperforming index followed similar patterns to those that emerged in other troubled eurozone share markets, notably Spain and Ireland (I also review my strong buy recommendation on Spain’s IBEX 35 index today). Although these economies remain troubled, mired in deflation and battling crippling unemployment, the banking system at least appears to have improved. With the accompanying fall in sovereign bond yields, this alone provides fundamental justification for their continued outperformance.

Technically, the CAC has twice teased beneath the 4170 support over the past couple of months. Both times the index rejected the price and bounced back quickly, suggesting this support remains firmly intact.

Recommendation:  stay long. Target 4930. Stop-losses can be activated on momentum below 4100.

CAC chart

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