The French stock market has experienced a significant amount of volatility in recent months, particularly surrounding political news. This volatility has led to a sharp pullback in the CAC 40 index, the primary benchmark for French stocks. Since reaching its peak in March, the CAC 40 has corrected nearly 10%, causing concern among investors. Despite this pullback, however, there are indications that a primary uptrend is still in place for both the CAC 40 index and the related iShares MSCI France ETF (EWQ).
It appears that the market is starting to find its footing and react positively to the latest news regarding the French election. Investors are hopeful that once the final outcome is determined, there will be a favorable response to the removal of uncertainty. This is especially important given the oversold status of French stocks in the current market environment. While the CAC 40 has underperformed compared to the S & P 500 Index for over a year, there are indications that the ratio may be overstretched to the downside.
There are signs of downside exhaustion from short-term indicators, and resistance at the downtrending 200-day moving average is significantly higher than current levels. This suggests that a counter-trend phase of outperformance could be possible for French stocks compared to U.S. stocks. The long-term uptrend of the U.S.-listed EWQ ETF is supported by the cloud model, indicating that the overall trend is likely to remain intact through the end of the year.
Recent stabilization in many French stocks indicates a positive reaction to widespread intermediate-term oversold conditions, which can be observed using the weekly stochastic oscillator. The stochastic oscillator for EWQ has turned higher from oversold levels, and short-term momentum has shown notable improvement. These technical indicators provide a positive catalyst for a potential rebound in the market.
The largest holding in the EWQ ETF, LVMH Moet Hennessy Louis Vuitton (LVMUY), makes up approximately 11% of the fund. LVMUY is showing signs of downside exhaustion near key support levels, suggesting a potential rebound that could benefit French benchmarks. Additionally, French energy giant TotalEnergies (TTE) has an intermediate-term oversold “buy” signal, indicating that its correction may have matured.
While the French stock market has experienced volatility in recent months, there are indications that the market is starting to stabilize and react positively to external factors such as political news. Technical indicators and momentum suggest that a rebound may be on the horizon, particularly for key stocks in the French market. Investors should continue to monitor the situation closely and consider seeking advice from financial advisors before making any significant investment decisions.