European stocks may advance about 5 percent by the end of June, after the benchmark Stoxx Europe 600 Index rebounded to a key support level on June 7, according to a technical analyst at Natixis SA.
The equity gauge may reach an inflection point in the next two to three weeks, after holding above the support of 290 last week, signaling a medium-term bullish channel, Ouri Mimran said by telephone from Paris today. If the index breaches the next short-term resistance levels of 299, then 303.24, it could climb to 311.07, implying a 5.3 percent rise from the close on June 7.
The Stoxx 600 posted its third weekly drop last week amid concern that the Federal Reserve may reduce bond buying as soon as September and as the European Central Bank refrained from announcing new stimulus measures. The index fell to 291.69 on June 6. Still, it climbed 1.3 percent to 295.4 on June 7 as a U.S. report showed employers in the world’s largest economy added more workers last month than forecast.
“Against this backdrop, a resumption of the bullish trend is possible, but the scenario of a continuing uptrend would only be confirmed in the event that the index breaks through the short-term resistance level of 299 points,” Mimran said. “Momentums are still bearish at this level because we’ve only seen one session of rebound, but we’re seeing good potential turning points, even if the momentum is still negative.”
A fall below 290 points would invalidate this scenario and extend the correction towards the next medium-term support at 281.43, representing a drop of about 4.7 percent. The Stoxx 600 lost 0.2 percent to 294.85 at 3:19 p.m. in London today.
In technical analysis, investors study charts of trading patterns and prices to predict changes in a stock, commodity, currency or index. Analysts identify resistance levels, or ceilings limiting further gains, and supports, which act as floors in a declining market.
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