European Stocks Back at Place Where Old Rallies Went to Die

  • Euro Stoxx 50 meets 200-day moving average after rebound
  • Index may fall as much as 4% in next few weeks, analyst says

Euro-area equities, trapped in a long-term bearish trend, are testing a level that they have struggled to hold for nearly a year.

The Euro Stoxx 50 Index rose to meet its 200-day moving average for the first time since November, after erasing losses spurred by the U.K.’s decision to leave the European Union. The last time around, the benchmark of the region’s blue-chip firms failed to hold out above the level after briefly surpassing it, and lost almost a quarter of its value in just over two months.

While clearing the hurdle could lead to short-term gains, the gauge is more likely to decline from here on, according to Roelof-Jan van den Akker, head of technical analysis at ING Bank NV. The equity benchmark is hampered by a longer-term downward trend since a record reached in April 2015, and could lose as much as 4 percent in the coming weeks, he said.

“The risk is to the downside,” said Amsterdam-based van den Akker. “On a short-term basis, moving above the 200-day average is a bullish sign, but I would say the movement will be very limited. This pullback towards the 200-day moving average line is a textbook selling opportunity.”

The Euro Stoxx 50 has fallen 20 percent since its 2015 peak, when it was boosted by a weaker euro amid the European Central Bank’s bond-purchase program. Concerns about the region’s economic growth, profitability at its banks and the efficacy of the stimulus have weighed on investor sentiment since then, making the gauge’s declines sharper than its advances. The gauge added 0.6 percent at 9:42 a.m. in London.

The index could fall toward its 50-day moving average of around 2,920 in the coming weeks, according to van den Akker. While the euro-area gauge is back near its pre-Brexit levels, its recovery was slower than for U.S., U.K. and Asian benchmarks, which recouped their declines in about two weeks or less following the referendum.

The index fell below its 200-day level after briefly surpassing it last November as worries about global growth resurfaced. Banks led the decline in the selloff through February, and continue to be the year’s worst-performing industry group.

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