Published December 06th, 2018
The CAC 40 is trading around the long-term S/R (red line). The technical picture shows a bearish impulse from the May 2018 orthodox high. A countertrend bounce of minor degree is likely to unfold soon
The current sell-off isn’t probably minor wave 3 yet. First, typical retracement targets for an alleged minor wave 2 have not been reached during the recent bounce. Historically, more than 90% of second waves past cycle turns retraced at least 38% of the bearish decline. Second, there are a few big opening gaps within the December downswing. Equity indices closed more than 80% of these gaps historically. An intermediate third wave in the current setup is a kiss-and-goodbye situation with no retracement of any Northbound opening gaps. This is contradictory to what has been observed in long-term equity index datasets. The above facts lead to the conclusion that minor wave 1 is probably extending as we publish this.
What has to happen that odds for a crash increase at this point? The S&P 500 would have to reach the 2,600 figure on an increasing downside momentum. Moreover, that action needs broad-based confirmation by virtually all risky assets worldwide. Last but not least, some newsflow trigger often comes along a “surprising” narrative within that kind of situations.
The bigger picture remains bearish. Equity indices worldwide diverged to each other over the past few months. Their all-time high or recovery high occurred months apart from other major indices. That’s a typical phenomenon around cyclical tops and bottoms. The trend turned most likely down. A downside price/sentiment feedback loop is likely to unfold in Europe. France won’t be able to circumvent the negative spiral.