Gold’s fall coupled with worrying macroeconomic data ignited a risk-off sentiment this week, turning investors far more pessimistic.
If we add the UK downgrade, usual May sell-in and the weak momentum across markets of last week, we can imagine a bearish scenario for the coming days.

In particular, we believe that the France situation is becoming seriously concerning month after month for several reasons – both internal and European – and the poor political response we are witnessing is not helping. Moreover, the CAC40 index has been performing pretty well so far, despite unsupporting fundamentals, and we therefore believe it is overvalued and at risk of being beaten hard in case of the likely developments of deepening euro-recession and failure to solve the debt crisis.
From a technical point of view, we consider the recent reaching of the lower Bollinger band as a sell signal.

Thus, we suggest taking a short position in CAC40 index by buying the convenient ETF Db X-Trackers Cac 40 Sht Daily Ucits Etf  for Italy based investors.

To limit the risk we suggest implementing a long-short strategy choosing another European index, such as DAX – which is safer – or FTSE MIB – which is showing a really strong momentum despite political impasse in Italy and could benefit from a resolution, or picking a large cap with huge exposure to the US from CAC40 itself.

Finally we suggest setting stop-loss threshold at 5% combined losses.


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