By Bob Bryan
With markets grinding higher and fears of an imminent recession seemingly in the rearview mirror, it wouldn't be hard to think the stock market has room to run upward.
Don't get too excited,
though, said the technical analysis team of Michael Riesner and Marc
Müller at UBS. It looks like the top and subsequent drop may be coming
soon.
"With the rally of the last few
weeks and looking at our daily trend work, the SPX has reached its most
overbought position since 2009!!" the team wrote in a commentary to
clients Tuesday.
"Together with significant
non-confirmations in our medium-term momentum work, and trading in the
time window of our late Q1/early Q2 top projection, we see the market
vulnerable for a significant reversal this week, which we would see as
the beginning of a tactical top building process and subsequent
correction into deeper Q2."
This is a reiteration of a call the two made last week, when they felt that the rally was too good to be true. While the forecast is not the UBS house view, the team does have a good track record, calling the coming downturn in stocks on December 5 and its eventually rebound on February 11.
"From a cyclical aspect we expect an initial pullback into first week April towards 2000/1970," said the commentary.
"On the sector front, we are
sticking to our last week’s comment and would take profit in the
overbought cyclical themes where we expect technology to form a lower
high, whereas banks can outperform short-term on expecting higher yields
and a steeper curve. We would sell commodity-related sectors, which we
continue to expect starting a new significant down cycle into deeper
summer."
If you want to dive into it,
technical analysis emphasizes levels of resistance.
These are levels
which the market reaches and either bounces up or falls down from.
Riesner and Mills say the S&P 500 has resistance at 2050, meaning it
is unlikely to break through that level, which is the basis of that
call.
In simpler terms, Riesner and Müller think investors should get out of stocks.
"We reiterate our last week’s
call and would use strength to sell instead of chasing the market on the
upside," they said in the commentary.
So there's a warning.
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