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U.S. Bank Shares Will Extend Rally: Technical Analysis

U.S. bank shares will rally further, building on yesterday’s gains, even as the Standard & Poor’s 500 Index looks set to retreat from a 3 1/2-year high, according to a technical analyst at UBS AG.

“It’s not like we’re getting super bullish, but the breakout in financials is game-changing,” Michael Riesner said in a telephone interview from Zurich. “There is a significant shift in the sector landscape.”

A gauge of lenders jumped 3.9 percent yesterday, capping a 18 percent advance so far in 2012, before the Federal Reserve said most banks passed its stress tests. Riesner said he expects financial shares to gather strength, while stocks sensitive to the economy become weaker.

“We wouldn’t chase the market here, only financials into a pullback,” Riesner said. “We’re cautious and don’t see a change in the medium term.”

The S&P 500 climbed 1.8 percent yesterday to 1,395.95, its highest since June 2008, as JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group each jumped more than 6 percent. The benchmark index may this week reach 1,401, its next resistance level, Riesner said.

This will be followed next week by the formation of tops in the S&P 500’s price chart, marked by a series of rallies, pullbacks and lower lows, Riesner said, adding he remains “cautious” over the outlook for the next eight to 12 weeks.

A setback of 5 percent to 10 percent for the S&P 500 is likely in the second quarter, Riesner said.

In November, Riesner said the S&P 500 would rally, having entered a “tactical bull mode” from a short-term cycle low. The gauge has gained 12 percent since then.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

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