If we have learnt anything from the past year’s international political turmoil, it is to expect the unexpected. Not only have recent election results confounded pundits’ expectations, but market reactions have also proven surprising.

On May 7, we will see the outcome of the second round of the French Presidential Elections. The polls currently point to a clear lead for pro-European Union centrist candidate Emmanuel Macron over rightwing nationalist Marine Le Pen. But the unexpected results of the Brexit referendum, and Donald Trump’s US presidential win, suggest caution should be the appropriate response until the final results are in.

The US elections further showed us that a surprise election result could also trigger an unexpected market response. Most pundits expected US market indices to plunge when Trump won. Instead, we have seen markets reach near all-time highs.

That means trading a major news event requires you to not only get the outcome right, but also to anticipate which way the market will move on the result. A spike in volatility and huge swings in both directions are likely to accompany the French electoral result.

So why take the risk of waiting to see who wins? Instead, it may be worth taking the time to analyze the market now to try and indentify potential strong setups for the aftermath of the elections.

Last month we discussed the long-term view of the French index (read the blog ‘Vive la France 40!’ on the 12th April). Following round one of the elections, let’s reassess this index to see what our overall view is. As usual, we want to start our analysis of the French Index (CAC40 – France 40 Cash) by looking at the higher timeframes for the big picture.

The monthly chart shows a resuming uptrend. We are currently seeing higher highs, together with fanning moving averages and accelerating indicator momentum. Further, price has cleared a significant horizontal level of support and resistance at 5,200. 

The weekly chart shows a strong and healthy uptrend, which recently pushed through the 5,200 level. The MACD and RSI are converging with fanning moving averages, while price is a little bit overextended from the moving averages and could do with a pullback.

 

On the daily chart, we have resumed the uptrend following the brief period in mid-April when the price hit a lower low, followed by a higher high. Round one of the election has caused a sizeable market gap due to increased market volatility. In last month’s blog, we identified a strong daily S/R level at 5,145 (marked above). Notice how the market gapped above this and the long term 5,200 level? Using two Fibonacci retracements we can see a cluster is formed at 5,145 by a 38.2% and a 61.8% level. This creates a zone of support where we could expect some buying to come into the market.

It will be crucial to watch the markets closely once the French result is in. Any long setup that occurs in the 5,145 – 5,200 zone of support will likely have strong components working for it, and would be supported by the higher timeframe momentum.

“Allons enfants de la Patrie, le jour de gloire est arrive.”

We wish you bonne chance!