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European Stock Gains May Continue, MTS Says: Technical Analysis

European stocks will gain for the next few weeks if they enter the third phase of a three-step recovery, according to Peter Beuttell, a technical analyst at MTS Research.

Phase A pushed the FTSEurofirst 300 Index (E300) from its September low to its October high, while phase B dragged stocks lower in early November. Phase C, a rally to a short-term high, may occur in the next few weeks, Beuttell said in a telephone interview from Bath, England today.

“I’m giving the market the benefit of the doubt to the upside within the context of a bear-market rally,” he said. “I’m not convinced the A-B-C pattern is complete.”

Beuttell predicted that the gauge will climb above the intraday high of 1,028 that it reached in October. He projected that the benchmark measure will extend its rally to 1,052 to 1,076 within the next four weeks. The FTSEurofirst 300 slid 0.9 percent to 975.41 at 12:55 p.m. in London.

“To maintain this short-term bullish outlook, the FTSEurofirst 300 must hold around the 50 percent retracement level of the October advance at 940, and produce less extreme downside readings in breadth, momentum and volume, which it has already begun to do,” Beuttell wrote in a note dated Nov. 11.

Technical analysts use the difference between high and low points on charts to find retracement levels, ratios that 13th century mathematician Fibonacci, who is also known as Leonardo of Pisa, observed in nature. In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net.

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