Wklytech-29-4-14 - Capitalsynthesis


Equities Sales Trading Commentary
Technical Analysis
Weekly Comment
Michael Riesner
Marc Müller
[email protected]
+41-44-239 1676
[email protected]
+41-44-239 1789
Global
29/04/2014
h
1814 New Pivotal Support … SXEP Breaking Out!
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•
US Trading: The mid-April reversal was significant, and with a fresh buy signal in our daily trend work we got
the ultimate and formal confirmation that our anticipated deeper April cycle bottom is in place, which makes the
April 11th low a new pivotal support. Consequently, as long as the SPX trades above 1814, the underlying tactical
picture in the SPX remains bullish, whereas a break of 1814 would imply that a more important top is in the
making.
•
After the recent high momentum reversal the US market was overbought. Short-term we cannot rule out some
more consolidation/pulling back into worst case next week, but given the still too cautious sentiment and
following our cyclical roadmap we continue to expect more strength into later May. A break of the early April
high at 1897 is just a matter of time and would open the way towards our 1920/1970 target zone. Our favorite
sector themes are unchanged. We expect a bounce in technology and biotech. In healthcare we expect new highs
and after some kind of consolidation we expect more strength in energy stocks.
•
US Strategy: After our anticipated early Q1 correction, the February 5th reaction low at 1737 represents a
medium-term pivotal level for the SPX. As long as the market trades above 1737, the broader trend in the US
remains bullish. From a cyclical aspect, the break of 1850 in early March gave us further confirmation that
despite the recent minor weakness, the SPX should remain bullish biased into minimum later Q2, which remains
our preferred timing for a more important top in equities.
European Trading: The FTSE MIB and the CAC-40 are the outperformer markets and still bullish biased from a
trend perspective, whereas the rest of Europe is trading in a broader/multi-month sideways trading range, which
maintains the strategically neutral picture but also underpins the underperformance versus the US. After the
recent bounce Europe was overbought and in line with our last week's call, the Euro Stoxx is pulling back. A
break of 3137 would imply more consolidation work into next week, which we would still see an opportunity to
buy/add. Into later May we continue to expect higher markets and the Euro Stoxx moving towards 3320/3350.
•
•
After 2years of underperformance it was a key call of our 2014 strategy to expect the European oil & gas sector to
move into a major long-term relative bottom. With the strength of the last two weeks the energy sector has broken
its 2012 underperformance trend, which implies that our anticipated major bottom is in place. We think energy is
just at the beginning of a longer lasting outperformance cycle into 2015/2016… buy any weakness!!
•
Inter Market Analysis: Gold is stabilizing around 1300. Short-term we cannot rule out more
basing/consolidation into next week but together with inflation expectations bouncing we are sticking to our
recent call and expect another significant rally to start from a late April/early May bottom into deeper/later
summer. Buy the dips in gold and gold mines.
•
Asian Corner: As long as the Nikkei trades above its mid-April low at 13885, the market remains bullish biased
and we continue to expect higher prices into summer. In the rest of Asia and the EM complex we see a corrective
pull back, which is healthy after the recent strong rally. We are sticking to our underlying bullish bias and
continue to see higher prices in the EM complex into deeper/later summer. However, the only point which
worries is the magnitude of the current pullback and the relative weakness in China and it is a factor we have to
keep on the radar screen. Tactically we also expect another bounce in China into summer but the underlying
relative weakness is suspicious and implies that later this year we could indeed see a negative surprise coming out
of China, and this could in fact be the trigger for a bigger correction in global risk prices!!
NOT FOR DISTRIBUTION INTO THE U.S.
UBS 1
Weekly Comment
US Equity Market Update:
Chart 1. ) S&P-500 Daily Chart
Bullish as Long as Above 1814
From a cyclical perspective we have been looking for a
minor pullback into deeper April before resuming the
underlying bull trend into May/June, where we continue
to expect the SPX and the US market moving into an
important top at around 1920/1970.
Chart 2. ) Nasdaq Composite Daily Chart
Chart 3. ) S&P-500 Weekly Chart with AAII Bullish Consensus
After reaching our 1820/1800 target zone we saw a higher
momentum bull reversal the week before Easter; and with
new breakouts in utilities, staples, healthcare, oil stocks
and a relative long signal of large/mega caps versus small
and mid caps we had increasing evidence that our
anticipated deeper April bottom is in place. With last
week's new buy signal in our daily trend indicators we
got the ultimate and formal confirmation that our
anticipated deeper April tactical cycle bottom is in
place, which makes the April 11th low at 1814 a new
pivotal support. Consequently, although selectivity in
the US market is increasing, as long as the SPX trades
above 1814 the underlying tactical picture in the SPX
remains bullish, and given the too cautious sentiment
and following our underlying cyclical roadmap, we
continue to see higher prices into later May.
Keep in mind: although on the sector front the picture in
the US is getting more and more diverse, the
underperformer of the March/April
correction
(technology, biotech, consumer discretionary) are basing
short-term, and we continue to expect a bounce in these
sectors into later May. On the other hand we have the
outperformer sectors oil, utilities and consumer staples
that are increasingly stretched and/or in consolidation
mode but on the back of the underlying trend momentum
we can expect more upside in these sectors into later May.
Last but not least we have the sentiment side, where the
AAII Bullish Consensus bounced to 34% but in the bigger
picture this is still a very low reading, which is still
constructive and implies more upside.
Conclusion: After the recent high momentum reversal,
the US market was overbought and we said a pullback
into this week is likely before starting the next breakout
attempt. On a very short-term basis we cannot rule out to
see some more consolidation and a break of 1860 would
indeed imply more weakness into next week before
expecting a new breakout attempt to start. However, in
the bigger picture we are sticking to last week's call
that on the back of the too cautious sentiment it is
actually just a matter of time before we see the SPX
breaking its early April high at 1897, and taking out
this level would imply more upside towards 1920/1970,
which remains our preferred target zone for an
important summer top in the SPX.
NOT FOR DISTRIBUTION INTO THE U.S.
UBS 2
Weekly Comment
US Equity Market Update:
Chart 4. ) Dow Jones Utilities Daily Chart
Diverse Picture in US Sectors
The pullback on Friday furthermore underpins the
increasingly diverse picture in the US sector landscape.
On the one hand we have the outperformer sectors, where
utilities as a defensive outperformer have hit a new
reaction high/all-time high and the DJU is heading
towards our next target projection at 560.
In the energy complex, the XOI continues to outperform
aggressively and the sector has hit a new reaction high as
well and is heading towards our next target at 1600. On a
short-term basis these sectors are overbought and can take
a breather (oil service is already pulling back) but on the
back of the recent strong momentum we definitely expect
more upside into deeper/later May before seeing a more
important tactical top forming.
Chart 5. ) XOI Daily Chart
On the other hand, we have the recent underperformer
that underwent significant corrections in March/April but
these sectors are significantly oversold and we see the
current market phase as a basing process and setup for a
significant bounce into May/June.
Having said that, despite the potential of a significant
tactical rebound in technology and biotech. By expecting
a major wave 5 of a larger degree developing in
technology, and a weekly short signal in record high
overbought position in biotech, we clearly see both
sectors moving into a major top followed by a significant
correction in H2.
Chart 6. ) Oil Service (OSX) Daily Chart
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In the bigger picture, such a market environment has an
increasing distributive character and implies that the
selectivity over the next few weeks is very likely to
further increase so that in the cyclical camp we should see
more and more sectors starting to underperform, whereas
the number of the outperformer sectors should gradually
deteriorate at the same time.
UBS 3
Weekly Comment
US Equity Market Update:
Chart 7. ) US Banks (BKX) Daily Chart
Watch Financials/Banks!!
With the Friday reversal, US banking sector has posted a
significant lower high; and with its significant
underperformance, the BKX is challenging its last
reaction low at 67 as an obvious key support. A break
of 67/66 would break the 200-day moving average, which
suggests further technical damage with more and more
trend following models generating short signals.
Generally, from a relative perspective the financial sector
is challenging a multi-month key support. From a pattern
standpoint the relative pattern of the last few months has a
latent negative trend continuation character, so a new
relative short signal would be negative and imply more
underperformance in financials.
Chart 8. ) US Financials (XLF) versus S&P-500
Keep in mind, banks are early cyclicals and in this
context we said in our 2014 strategy that we wouldn't
be surprised to see banks topping out earlier as the
overall market and if so, this would be further
evidence that the US market is on the way into an
important top in later 2014. A break of the obvious
relative support of the XLF versus the SPX would be
just another piece of evidence the US market is
trading in the late stages of a bull market.
Chart 9. ) US Housing (HGX) Daily Chart
Keep an eye on the US housing sector. Since the February
top, housing is strongly underperforming and during the
recent market bounce the rebound in the HGX was just
weak, which is even more surprising given the recent
bounce in the US bond market. With the bearish Friday
candle, the HGX is re-testing its August 2012 trend
support, and the zone of 195 to 192 furthermore
represents an important horizontal support. A break would
underpin the weak technical picture and imply a test of
the 200-day moving average at 188. A break of this level
would suggest a next target at 182.
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UBS 4
Weekly Comment
US Equity Market Update:
Gold Basing … Watch Inflation Expectations!!
After the weak April bounce we said we couldn’t rule out further short-term weakness/basing into later this month/early
May before starting the next more important bounce, and even a break of the early April low at 1277 wouldn't change our
base case scenario where we expect to see at least one more significant bounce/rally attempt into deeper/later summer
before seeing the yellow metal moving into another important cycle top followed by a potential new bear cycle into 2015.
Tactically, gold has successfully tested its early April low at 1277 and with last week's bounce the yellow metal is testing
its 200-day moving average as a minor resistance. The real long trigger we see at 1331, which represents the last lower
reaction high and where a break of this level would complete a bigger double bottom. From a cyclical perspective it is in
our view a few days too early to call a bottom and in this context we are sticking to our recent call, that we cannot rule out
further near-term weakness into early May (next week) before starting the next rally leg.
Generally, on the inter market side the background for gold is gradually improving. In copper we saw a strong
bounce last week, and in other commodities we see selective strength, which causes the CCI index to test its midMarch wave 3 top which from a cyclical perspective represents an important multi-month cycle peak. Even if we
were to see another short-term pullback in the current position, we would see this just as part of a bigger corrective
pattern and in this context we continue to expect higher commodity prices into later summer. From a pure cyclical
perspective, a break of the March high in the CCI index (it does not matter when) would imply a bullish market
environment
for
commodities
into
Q3
Chart 10. ) Gold Daily Chart
(August/September) where we have the next major top
projection in the CCI, and which in fact should bring us
the top of the 2014 bear market rally in the commodity
complex.
Conclusion: Tactically it remains our key message that at
the end of the day it's just a matter of time before we see
a new breakout in commodities, and this would be
clearly bullish gold, and Emerging Markets!! Keep in
mind, on the back of the recent bounce in
risk/commodities we also see momentum coming into US
inflation expectations, which is usually a superb leading
indicator for gold. With the current pullback in the yellow
metal we have a bigger divergence forming versus this
indicator. If inflation expectations continue to bounce, it's
just a matter of time before we see another big rally leg
starting in gold. Buy the dips in gold and gold mines!!
Chart 11. ) CCI Index Daily Chart
NOT FOR DISTRIBUTION INTO THE U.S.
Chart 12. ) US Inflation Expectation versus Gold
UBS 5
Weekly Comment
Asian Corner Update:
Constructive Pullback in EM's but Watch China!!
Strategically, the early February low in the Emerging Market complex represents a major bottom, and in line with our
2014 strategy we saw and see this as the basis for a longer lasting multi-month bear market rally into later summer before
starting a new correction process into 2015. Into early March, the MSCI Emerging Market posted a higher low as the setup
for a significant breakout attempt. In more or less all Asian/Emerging Markets we have seen aggressive and impulsive
rallies, and furthermore in late March we saw our anticipated relative breakout in the Emerging Market complex versus the
MSCI World.
Tactically, in early April the EM complex and most Asian markets were pretty much overbought and we said a pullback
into deeper/later April is likely before starting the next more important rally/breakout attempt. In the meantime, we see the
outperforming Asian markets (Straits Times, NIFTY and Taiwan) pulling back. The current pullback in the MSCI
Emerging Market and most other Asian markets has a pure corrective character so that all in all we are sticking to
our underlying bull call, where we continue to see the current weakness just as a springboard for higher prices in
the EM complex into deeper/later summer, which fits our inter market call to expect minimum one more rally leg
in commodity prices into later summer.
However, within this scenario there is one worrisome factor that is a threat for the EM complex. After the recent strong
bounce in China we have seen a significant and high momentum setback in the Chinese market. The SSEC and the CSI
300 are again on the way of testing their obvious key support
Chart 13. ) MSCI Emerging Market
levels, which they have successfully tested in late March.
Again, in late March/early April we argued how important
this technical support in the Chinese market is. It is
definitely not our expectation that in the current
situation the Chinese market will surprise negatively and
break down. The Shanghai copper price has bounced
around 13% from its March panic low and in the Hang
Seng China Enterprise index (chart 16.) we continue to
expect a higher low as the setup for another bounce/rally
into summer. Nonetheless, the magnitude of the current
pullback and the relative weakness in China worries us
and it is a factor to keep on the radar screen. So although
we also expect in China to see another bounce into
summer, the underlying relative weakness is suspicious
and implies that later this year we could indeed see a
negative surprise coming out of China. If so, it would be
a threat for the bull trend in global risk assets!!
Chart 14. ) Straits Times Index Daily Chart
In the outperforming markets such as Singapore, Taiwan
and/or India we see a pull-back but after the recent strong
momentum we continue to see higher prices into summer.
Continue to buy the dips!!
NOT FOR DISTRIBUTION INTO THE U.S.
UBS 6
Weekly Comment
Asian Corner Update:
Chart 15. ) Shanghai Composite Daily Chart
China
The break of the 2080 resistance and the 200-day moving
average was appealing and in this context the magnitude
of the current set back as well as the relative weakness are
a negative surprise.
With being oversold short-term we also expect China to
start another bounce/rally near-term, which means for
aggressive traders the current pull back represents a
buying opportunity. However, the continued relative
weakness is a warning signal, which later this year could
bring us in fact a real negative surprise out of China and
in this context the zone of 1950/1920 remains a strategic
key support for the SSEC.
Chart 16. ) Hang Seng china Enterprise Index Daily Chart
The set back in the HSCE is somewhat stronger as
anticipated but we see this pull back nonetheless posting a
higher low versus the March low and therefore as a
buying opportunity for traders!!
Buy the dips!!
Chart 17. ) Nikkei-225 Daily Chart
Nikkei-225
With the current pull back the technical picture in Japan
remains unchanged to last week. In our cyclical model the
mid April represents an important cycle low, so as long as
the Nikkei trades above 13885 the market remains at least
from a cyclical perspective bullish biased and following
our cyclical roadmap we continue to expect another
significant rally/bounce attempt into summer.
We reiterate our last week's call and would use weakness
to buy/add.
NOT FOR DISTRIBUTION INTO THE U.S.
UBS 7
Weekly Comment
European Equity Market Update:
Still in Neutral Stance But with Constructive Patterns
The FTSE MIB and the CAC-40 remain the outperformer markets and still bullish biased from a trend perspective,
whereas the rest of Europe (including Spain and Portugal) is trading in a broad based and volatile multi-month sideways
trading range, which maintains the strategically neutral picture but also underpins the underperformance versus the US,
where we still have an intact bull trend intact in most headline indices. After the recent bounce Europe was overbought and
in line with our last week's call, the Euro Stoxx is pulling back. A break of 3137 would imply more consolidation work
into next week, which we would still see an opportunity to buy/add. Into later May we continue to expect higher markets
and the Euro Stoxx moving towards 3320/3350.
Chart 18. ) Euro Stoxx 50 Daily Chart
Euro Stoxx 50:
With a higher low at 3083 in place, the tactical focus is
on the last high at 3239. Last week the Euro Stoxx was
short-term overbought and we expected a pullback
before starting a real breakout attempt. A pullback is
technically not problematic while holding above 3083,
which represents the pivotal short-term support.
With our momentum indicators in neutral territory,
further choppy trading and another pullback early this
week must be taken into account. Overall, our last
week's view remains unchanged and we expect another
test to the upside where a break through 3239 would
pave the way towards 3320/3350 into later May/early
June, where we expect the market to move into an
important cycle top.
Chart 19. ) STOXX Europe 600 Daily Chart
STOXX Europe 600
Despite the high selectivity between the regions and on
the sector basis as well as the initial relative weakness
in the small and mid cap camp, the broader STOXX
Europe 600 index is still showing a very constructive
pattern setup, where the whole Q1 chart pattern has
the shape of an ascending triangle, which has
usually a bullish trend continuation character as
long as we do not see the break of the last higher
low, which is the mid April low at 325 to320.
From a pure price point of view, the key
resistance/breakout level is at 340 and the bullish trend
confirming character remains intact while trading above
the key support zone at 325/320, which is a strategic
support for the broader European market.
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UBS 8
Weekly Comment
European Equity Market Update:
Chart 20. ) FTSE-100 Daily Chart
FTSE-100:
The medium-term trading range is intact and the tactical
focus remains on a test of the major resistance at 6840
into deeper May. On the sector side, the index continues
to get tailwind by energy, food and most recently by a
strong bounce in healthcare. Further down the road we
remain constructive in particular on the late cyclical
energy complex, which should continue to outperform
and could provide support for a test of 6840.
Chart 21. ) DAX-30 Daily Chart
DAX-30:
From a relative point of view, last week's bounce of the
DAX was short-lived and the medium-term
underperforming picture versus the rest of Europe has not
changed. In absolute terms, the Q1 sideways trading range
is intact, which means the trend condition is neutral.
Tactically, the mid-April low at 9166 defines the most
significant short-term support and the big resistance is
unchanged at 9721/9794. Late last week saw already the
favored pullback, which is unproblematic while holding
above the mid-April low at 9166.
Conclusion: While trading above the last higher low at
9166, the tactical focus remains on 9800, where a break
would be required to pave the way towards our summer
target at 10000/10600.
Chart 22. ) Swiss Market Index Daily Chart
Swiss Market Index:
Last week we saw little movement on the single stock
front and the result was just a small gain on a weekly
close basis, which keeps the index momentum muted.
With expecting a continued high selectivity we do not
believe in any near-term high momentum breakouts.
However, further down the road into later May, a test of
the overhead resistance at 8544 remains on the agenda
and a successful new high would provide moderate price
upside towards 8800 to 8850. The last low at 9166 defines
a short-term key support for the SMI.
NOT FOR DISTRIBUTION INTO THE U.S.
UBS 9
Weekly Comment
European Equity Market Update:
Oil & Gas Breaking Out … Buy Any Weakness!!
After 2years of underperformance it was a key call of our 2014 sector strategy to expect the European oil & gas
sector to move into a major long-term relative bottom as the basis for a longer lasting outperformance cycle. By
anticipating equities/risk moving into an important top in H2 this year our sector focus was generally more on late cyclical
sectors, where we nonetheless anticipated a different timing between a basic resource sector (which is still disappointing as
a late cyclical play) and the oil sector. Whereas we thought basic resource should be highlycorrelated to a bullish trend in
risk and a bear rally in commodities/Emerging Markets we said it's likely that the oil sector actually starts with its
anticipated outperformance cycle somewhat later in 2014, since at the end of the day the oil sector has a rather defensive
note.
Fact is that with the break of 341 in the SXEP we got a high momentum breakout in the European oil sector. More
importantly, from a relative perspective the SXEP has broken its 2012 underperformance trend, which implies that
our anticipated major bottom is in place. Generally, 2014 is a very selective years in equities with a lot of tactical
swings based on the relevant positioning of investors. The breakout in the oil & gas sector is in our NOT just tactical,
we think the current strength is just the beginning of a significant and longer lasting outperformance cycle into
2015/2016. Having said that, as long as we have an intact risk on market environment we could still see a bigger bottom
building process (including tactical set-backs in absolute and relative terms) but at this point where we get evidence of a
bigger top forming/completing in risk we should see increasing momentum in the outperformance trend as a defensive
play.
Chart 23. ) STOXX Europe Oil & Gas (SXEP) Daily Chart
Chart 24. ) STOXX Europe Oil & Gas versus STOXX-600
NOT FOR DISTRIBUTION INTO THE U.S.
Conclusion: The break of the 341 resistance represents a
high momentum breakout in the SXEP. On a short-term
basis oil stocks are increasingly overbought so that we could
easily see a pull-back but our key message is that after the
high momentum relative breakout in US oil stocks we
have now also a confirmed relative trend reversal in the
European oil sector in place, which means that from an
investor standpoint any weakness is in our view a buying
opportunity. In absolute terms the next bigger resistance
in the SXEP is at 364, which is the 2011/2012 top.
Chart 25. ) STOXX Europe Oil & Gas versus STOXX-600
UBS 10
Weekly Comment
STOXX Europe 600 Index Sector Overview:
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UBS 11
Weekly Comment
Exchange Traded Derivatives (ETD) – Switzerland
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5
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UBS 12
Weekly Comment
Weekly Technical Indicators: (Source: Pinnacle Data, Datastream) Charts: Metastock
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UBS 13
Weekly Comment
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