Europe’s Banks Will Continue Relative Decline

Europe’s biggest banks will fall further relative to a gauge of euro-area shares because a measure comparing the two has dropped below a long-term trend line, according to a technical analyst at ING Groep NV.

A weekly price chart showing the ratio between the Euro Stoxx Banks Index and the Euro Stoxx 50 Index has crossed a downward trend line that connects highs from October and November 2009, and July 2010. That suggests shares of lenders have yet to bottom, according to a report by Roelof-Jan van den Akker, a senior technical analyst at ING in Amsterdam. The measure also closed below its 40-day exponential moving average in March for a second bearish signal, he wrote.

“The banking relative chart is disappointing and suggests that the recent recovery could be followed by further underperformance in the coming weeks and months,” Van den Akker wrote in the note dated yesterday.

The Euro Stoxx Banks Index dropped 2.6 percent to 101.91 yesterday. The gauge slumped 11 percent in March, its biggest decline in 10 months. It has tumbled 9.3 percent so far this year, while the benchmark of the euro area’s biggest companies has gained 0.1 percent.

Lenders will probably extend their decline relative to the Euro Stoxx 50. A break below the July 2012 low in the relationship between the two indexes would confirm further losses by bank shares relative to the Stoxx 50, Van den Akker wrote in the note.

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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