European shares were smashed in overnight trading. Major indices fell by 3%+. The moves were a surprise to many, and the higher than average volumes indicate real commitment from sellers and hint at potential panic. This sort of step change in market behaviour often points to "more to come". So, what to sell?

Hello, France.

In my view, the French economy is the weak link. Growth is woeful. The Q3 read on GDP growth did pick up - from zero to 0.5% per annum. France is on the edge of recession, and the most worrying aspect is the unwillingness of policy makers to change the obvious structural obstacles to recovery. Farm subsidies, generous unemployment benefits, a rigid labour market, early retirement and substantial social challenges. You couldn't make this stuff up. Its no wonder French politicians are the most vocal supporters of a full blown ECB stimulus program.

Then there's the market itself. Even after last night's falls, the France 40 index (tracking the CAC 40) is trading on 24-25x earnings! Normally, that sort of multiple is reserved for tech indices or share market tops, or at least high growth scenarios; none of which apply here.

The chart shows an approach to an important long term level:

20150106 cacBreaking down through 4100 may signal further falls to come - and may occur tonight. However, consider how this picture will deteriorate if 3930 is breached. Levels below 3000 may come into play.

Whether trading or hedging, the France 40 is my favoured short, especially as a "Texas hedge" to existing portfolios. You don't have to be French to sell the France 40 index.