- US Trading: The trading set-up in equities is virtually unchanged to last week. Daily momentum indicators are at overbought extremes, put/call ratios are strongly declining and intraday momentum is deteriorating, so the upside seems to be capped on a short-term basis. However, with trending indicators in outright bullish position and a successful breakout in the banking index, the underlying trend picture remains bullish, meaning any kind of pullback/ consolidation should be short lived.
- From a cyclical standpoint, we still see the risk of some minor weakness into next week before the market resumes its underlying bull trend into April. Our targets on the upside remain unchanged. After a short-term pullback to 1135/1128 we continue to anticipate a final SPX target between 1200 and 1230.
- US Strategy: Last week we highlighted the still bullish but overbought market breadth. Although the NYSE Advance/Decline line hit another all-time high last week, we are seeing initial signs of weakening momentum in market breadth. The number of new 52-week highs at the NYSE is starting to deteriorate and we have a developing divergence between the semiconductor index and the SPX. This is the first piece of evidence that equities are on the verge of a major distribution phase, which however usually lasts several weeks before moving into its ultimate top.
- European Trading: Last week we saw ongoing sector rotation, with defensive groups retreating whereas financials and high beta sectors such construction, autos and technology have been extending their bounce relative to the Euro-Stoxx. The healthy sector rotation is one reason why the market breadth continues to be strong. On a very short-term basis European headline indices are facing headwind by an overbought situation. However, a near-term pull-back should be limited in price and time so we stick to our tactical bullish view and expect more strength into April. Buy autos into weakness!! Although
28463529 UBS Equities Technical Analysis Mar 16 2010
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