European Stocks May Drop 5 Percent in Two Months: Natixis

European stocks may drop more than 5 percent in the next two months after breaching a key support last week, according to a technical analyst at Natixis SA.

The Stoxx Europe 600 Index may decline to its next support level of 274 in the next two months, Ouri Mimran said in a telephone interview from Paris today.

“The index breached the major support level at around 287 points on April 5, which was the main event and confirmed we’re probably heading toward a consolidation,” Mimran said. “The index rebounded last week, but nevertheless failed to breach a short-term resistance level at 296 points, suggesting that it will return to last week’s low point before initiating a correction over the weeks ahead.”

The gauge posted its biggest weekly advance in more than a month last week amid speculation that central banks will continue to provide monetary stimulus and as a report showed Chinese imports beat forecasts. The Stoxx 600 has rallied 24 percent since June 4, when it reached its lowest level in 2012.

A breach above the level of 296 would invalidate the scenario of a correction, Mimran said. The Stoxx 600 dropped 1.1 percent to 289.33 at 12:14 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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