French Stocks May Rally More Than 8 Percent

French stocks may rally more than 8 percent in the next two months if the benchmark CAC 40 breaches the key level of 3,871, said a technical analyst at Natixis SA.

The index may this week test the short-term resistance of 3,882 -- the point at which the 3,871 level will be considered safely surpassed -- before breaking out to 4,072, Ouri Mimran said by telephone from Paris today. That implies an 8.5 percent jump from the July 5 close. “The sharp consolidation observed on Friday does not undermine these positive signals,” he said.

The gauge slumped 1.5 percent on July 5 as better-than-forecast U.S. payrolls data added to speculation that the Federal Reserve has enough room to pare stimulus this year. The benchmark index has retreated 5.8 percent from May 22, when Fed Chairman Ben S. Bernanke indicated that the central bank may reduce its asset purchases if the economy improves in line with its forecasts.

“Having interrupted the steep correction observed in June after reaching the support zone at around 3,570 points, the French index confirmed that it was on the road to recovery last week by breaching the short-term resistance level at 3,725 points, which marked the top of the short-term downward channel,” Mimran said. A drop to less than 3,709 would invalidate the bullish scenario, he 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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