French equities show strong potential

Price at time of writing – 4285.

One of the more positive-looking stock markets at the moment remains that of France. 

In my last CAC 40 update on 21 October I noted the recent breakout above the G2 resistance at 4180, an event that allowed me to project ahead to a fresh target as high as 4930. Long positions that I recommended at the time remain firmly intact.

Following that initial thrust above 4180, the CAC has spent the past month consolidating the breakout, having hit a peak of 4356 in early November. This sideways grind is a positive signal, however, and offers the best form of necessary consolidation. While the French economy did not collapse during the financial crisis as many southern-nation members of the eurozone did, it has been troubled nonetheless. My analysis is now pointing to a clear level of share market outperformance by these previously troubled economies. The share markets of France, Spain, Italy, Ireland and Greece all look set to provide better returns in the year ahead than those of their neighbours.

There is no change on today's CAC 40 chart. All relevant percentages remain in place and there has been no need to introduce additional lines. Firm support remains intact in the tight band defined as 4170-80, and can be used as a buying opportunity should the index re-test this level.

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

CAC 40 chart

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