The Paris Bourse has been racking up record after record in recent weeks, with new peaks accompanied by the crossing of important technical thresholds, starting with the 8,000-point mark.

From a graphical point of view, the recording of all-time highs can be seen as a sign suggesting that investors want to extend the bullish momentum at work since this autumn, and that the market is ready to go even further.

Yesterday's announcement of the Fed's accommodating stance seems to justify the record levels and gives hope that the rally will continue, but the temptation to take profits remains strong among investors.

For Alexandre Baradez, Head of Market Analysis at IG France, the CAC may find it difficult to climb spectacularly after its recent record highs, but its upside potential remains significant.

Cercle Finance: After a spectacular gain of over 20% since the end of October, can the bullish momentum be sustained over time?

Alexandre Baradez: Even though the CAC 40 is expensive compared to its European counterparts (it pays 16.2 times realized earnings versus 15.2 times for the DAX, 11 times for the IBEX and less than 10 times for the Italian FTSE MIB index), I don't see any fundamental or technical factors that look very bearish for the index.

For example, the rise in recent months has been driven not only by luxury goods, but also by a strong contribution from the aerospace, automotive, tourism/leisure and tech sectors. Such an upward trend - based on several pillars - is quite healthy.

CF: So, are new records to be expected?

AB: It all depends on the time horizon, as always. In the short term, the only fears I have are linked to the valuation of US markets (nearly 26 times realized earnings and close to 21 times 12-month expected earnings), and it seems to me that the rebound in rates in recent weeks and the resilience of certain price indices (CPI and PPI in particular) could push traders to take some gains on current levels.

Even if I believe that European markets can outperform US markets over the next few months, a correction in US indices could still have a temporary impact on European indices.

But in the medium term (a few months to a few quarters), I see no reason why the index shouldn't go on a record-breaking run. Its composition is well diversified and well exposed to a possible recovery in China. And European indices are clearly not 'expensive' from a historical point of view compared to American indices. With the euro not very high against the dollar, exposure to China's recovery and future rate cuts by the ECB, foreign and domestic investors could find good reasons to continue buying European stocks.

CF: From your point of view, what are the next resistance thresholds likely to appear on the horizon?

AB: There isn't really any technical resistance very close by: the only one I can see is at 8800 points and is made up of the oblique linking the 2020 and 2022 highs. Then there's the psychological, rather than technical, level of 10,000 points. Obviously, I don't think we'll go in a straight line to these levels, but they are achievable targets over the medium term.

CF: Conversely, do you see any potential support on the downside?

AB: The support the CAC 40 could see again, if the US markets were to experience a wave of correction, would be the 7800-point zone (former oblique resistance from the January 2022 and April 2023 highs, now support)

But any return to this zone would be seen more as a buying opportunity than a threat. I think the market will be in a 'buy the dip' pattern, buying on the lows, for several months.

CF: What target can investors set themselves before they start taking profits?

AB: Once again, it all depends on the time horizon: if you're positioned for medium-term horizons of 12 to 24 months, I don't see any fundamental or technical reason to take profits before 10,000 points.

On a time horizon of a few days to weeks, the risk of seeing US indices "breathe" after the strong rally in place since the end of October is not negligible. If this were to happen, European indices could also be subject to gains on current levels (8200 points).

The risk would then be to return to the first important support level at 7800 points, and in a less likely case, to the second level at 7350 points, but it seems to me that these support zones, if revised, would represent good buying points.

In my opinion, a 'buy the dip' strategy applies to the CAC40 up to the 10,000-point mark

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