European Bank Shares to Extend Rally by 14%, Says Aviate

European bank shares, the best-performing industry group on the Stoxx Europe 600 Index since the start of the year, will rally as much as 14 percent, according to a technical analyst at Aviate Global LLP.

The Stoxx 600 Banks Index will rise as high as 200, Riccardo Ronco, head of technical analysis at Aviate Global in London, said in e-mailed comments yesterday. Both its 50-day and 200-day moving averages are climbing, with the short-term line trading higher of the two, he said. Also, the ratio between the banks gauge and the Stoxx 600 has jumped above its 40-week mean after crossing it in September 2012, he added.

“What we have here is a break-out above 52-week highs, and it’s continuing on good volumes,” Ronco said. “The system is healing little by little. We are, maybe, not going to have growth in the big economies, but my charts tell me that the situation is getting better.”

The Stoxx 600 Banks Index rose 0.7 percent to 177.45 at 1:59 p.m. in London, climbing for the eighth day. This is its longest winning streak since November 2009.

The relative strength index on the banks gauge, which includes HSBC Holdings Plc, Banco Santander SA and BNP Paribas SA, has risen to the highest level since April 1998. It has exceeded 82, well above the 70 mark that some analysts consider a turning point in the momentum of price increases.

Still, investors should not read this as a bearish signal, Ronco said.

“Sometimes when you have a sharp strong reading, it means a change in the structure of the market,” Ronco said. “I’m not going to short and I don’t think it is overdone. I think we’ll be able to see a rotation into this sector.”

The banks index increased 23 percent last year. Since the New Year, the gauge has rallied 8.7 percent as global central-bank chiefs agreed to relax and delay new rules on bank liquidity, and U.S. lawmakers announced a compromise budget. The Stoxx 600 gained 3.1 percent in the same period.

In technical analysis, investors and analysts study charts of price, volume and other trading data to predict changes in a security, commodity, currency or index.

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