Europe Bank Stocks May Rally 18%: Technical Analysis

The Stoxx 600 Banks Index, a measure of shares in European lenders, may rally as much as 18 percent in the next three months if it can breach its highest level this year, according to a technical analyst at Natixis SA.

The gauge may extend its advance to a first resistance level of 194.34 in the next two months if it can break through its intraday high of 180.06 reached on Jan. 30, Ouri Mimran said in a telephone interview from Paris today. The index may then climb to 209.80, an 18 percent jump from yesterday’s close.

“Upside potential for banking stocks over the next few weeks remains intact,” Mimran said. “We’re seeing European banks holding nicely above the support trendline at 173.70, not far away from its recent high. Breaching through that level would signal a new upward wave.”

The measure, which includes HSBC Holdings Plc and Banco Santander SA, has rallied 46 percent since it reached the lowest level of 2012 on June 4 as the European Central Bank committed to an unlimited bond-buying program and U.S. lawmakers agreed on a compromise federal budget.

A pullback below the level of 173.70 would signal a consolidation in one to two weeks, “but that will not invalidate completely our scenario,” Mimran said.

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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