The Bullish Reversal: A False Breakout on CAC
28 June 2023
In today's analysis, we focus on the French index CAC. The index has been forming a large head and shoulders pattern, marked in yellow, since the start of the year. Despite a breakout below the neckline of this formation last week – usually a strong sell signal – sellers failed to drive the price lower. On Monday, the price reversed sharply, bouncing off the 23.6% Fibonacci level and forming a hammer candlestick on the daily chart, indicating that there may be no appetite for further declines.
The price has now rebounded above the neckline (shown in pink on the chart), creating a false breakout pattern (marked by the green rectangle). False breakouts often present excellent trading opportunities to go against the initial breakout direction – in this case, upwards. As a result, the sell signal for the CAC is no longer valid, and we anticipate further price increases. A robust, long-term buy signal for the CAC would be a break above the black downtrend line, which connects lows from April, May, and June.