The French stock market has recently experienced a period of volatility as a result of political news. This instability has led to a significant pullback in June, with the CAC 40 index correcting nearly 10% since reaching its peak in March. Despite this setback, it is important to note that a primary uptrend still remains intact for the CAC 40, as well as for the iShares MSCI France ETF (EWQ). Both of these indicators suggest that French stocks are starting to stabilize and react positively to the latest developments in the political landscape, particularly with regards to the election.
With the final outcome of the election yet to be determined, investors may soon respond favorably to the removal of uncertainty, especially considering the oversold nature of French stocks at the moment. Although the CAC 40 has underperformed in comparison to the S&P 500 Index for over a year, the current ratio seems to be stretched too far to the downside. As short-term indicators signal signs of downside exhaustion and resistance levels at the downtrending 200-day moving average, there is a possibility for a counter-trend phase of outperformance for French stocks against U.S. stocks in the near future.
The iShares MSCI France ETF (EWQ) is currently in a long-term uptrend according to the cloud model, with support levels near $36.80. This indicates that the cyclical bull trend that started from the 2022 low is still intact, and the cloud model predicts a rise through the end of the year, suggesting that the long-term uptrend will continue. Recent stability in many French stocks also reflects a positive response to intermediate-term oversold conditions, as indicated by the weekly stochastic oscillator. The oscillator has moved higher from oversold levels for EWQ, while short-term momentum has significantly improved, pointing towards a potential rebound in the near future.
The largest holding in the iShares MSCI France ETF (EWQ) is LVMH Moet Hennessy Louis Vuitton (LVMUY), which accounts for approximately 11% of the ETF. LVMUY is showing signs of downside exhaustion near key support levels, making it a likely candidate for a rebound. Additionally, French energy company TotalEnergies (TTE) has received an intermediate-term oversold “buy” signal, indicating that its correction phase may have come to an end. These signals are constructive for the French benchmarks and suggest a potential recovery in the market.
Despite recent volatility and political uncertainties, the French stock market shows signs of stability and potential for a rebound. Technical indicators and long-term trends point towards a positive outlook for French stocks, with key holdings signaling potential recovery. Investors should closely monitor the developments in the market and take into consideration the signals provided by technical analysis to make informed investment decisions.