April 2014 Technical Market Outlook

Peter Lee – Chief Technical StrategistCIO Wealth Management Research

This report has been prepared by UBS Financial Services Inc. (“UBS FS”).

All charts and data are sourced from Thomson Reuters, Bloomberg, Indexindicators.com and UBS CIO WMR as of 4 April 2014

7 April 2014

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Highlights• Equities – US Equities (SPX) – On a near term trading basis, the recent February to March 2014 rally of 8.44% has led to yet another overbought

condition. A negative outside day on 4/4/14 warns of a new trading range between 1,845 and 1,885. Since the height of this range is nearly 50.5points the outcome of this battle between the bull and bears is likely to determine the next trading move. A break out above 1,884.97 renders a SPXtarget towards 1,935.5. On the other hand, violation below 1,845 also opens the door for a decline to 1,794.5. On a medium term technicalperspective, a third uptrend channel remains intact from June 2013 at 1,787 and 1,921. A break out above 1,921 suggests +134 points or upsidetarget to 2,055, intermediate term. Key initial support is available along 1,834-1,849 corresponding to the 50-day moving average and the mid-Jan/Mar 2014 lows. A break down here suggests downside risks to 1,774-1,787 or to the 150-day moving average, June 2013 uptrend and 2/7/14upside gap. Violation here is technically significant as this opens the door for a deeper correction towards 1,738 and then to 1,600-1,650 or close tothe pivotal May 2013 technical breakout.

• Currencies – On a intermediate term technical basis, the US Dollar Index remains in a large symmetrical triangle over the past six years via aconverging trading range between 74.5 and 86. Last year's breech of a 3-year rising wedge pattern at 81 hints of a weaker US Dollar. A potential 2-year head/shoulders top formation also warns of a deeper correction if key neckline support at 78.6-79 is convincingly broken. A break down heresuggests downside risks to 74.5 and then 72.5. Key initial resistance remains at 81.5-82.5. A convincing surge above this supply zone signals the startof sustainable US Dollar recovery.

• 10-year US Treasury yields – The outcome of two distinct trading ranges can help to decide the near-to-intermediate term direction of US interestrate trends. A 2-month trading range has developed between 2.57-2.60% and 2.79-2.82%. A break out above 2.82% suggests upside to 3.04-3.08%, near term. However, a break down below 2.57% also renders downside to 2.31-2.42%. The one year trading range between 2.42-2.47%and 3.01-3.04% is the more significant trend as a break out above 3.01-3.04% renders upside target to 3.62% or very close to the top of its 32-plusyear structural downtrend channel. On the other hand, a breakdown below 2.42-2.47% opens the door for lower interest rates towards 1.84%-1.87%.

• Commodities – Has the super bull cycle in commodities ended? Despite the strong selling over the past few years CRB Index still retains its primary2009 uptrend (257) as well as the 61.8% retracement (232.5) from the 1999-2008 rally. A Jan 2014 positive outside month and 2-mo flag patterncan trigger a rally to 322-332 and possibly to 345-371. Gold has successfully tested its key support at 1,182-1,183 creating the potential for a doublebottom pattern between 1,182 and 1,428. WTI Crude Oil is attempting to reaffirm its two prior symmetrical triangle breakouts by tradingconvincingly above the low-100s (101-104).

• S&P 500 Sectors – After experiencing a spectacular year in 2013, the first quarter has been erratic as evident by multi swing months for Jan (down),Feb (up) and March (up). SPX ended the quarter marginally higher (+1.30%). As SPX enters into the third stage of its four stage bull market orcommonly referred to as the Mania stage we will closely monitor many of the leadership sectors including Healthcare, Consumer Discretionary,Technology and Growth sectors for technical signs of maturing or waning trends. Towards the later stage of a recovery/expansion cycle we can expectmany of the lagging sectors including the defensive and high dividend yielding industries as well as the deeper and more economically sensitivesectors such as Energy begin to relatively outperform the market and peers. It is interesting to note that during the later stage of the prior 2002-2007bull rally, Energy and commodity based sectors dramatically outperformed the market. In fact, these sectors continued to trade to record all timehighs months and quarters after the broad market peaked in October 2007.

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S&P 500 Summary• Wall Street S&P 500 Index - 2014 Year-End Forecasts

13 Sell Side Equity Strategists made Year-End 2014 forecasts. The average SPX forecast was 1,956.

Barron's Round Table also made Year-End 2014 projections. The mean SPX projection was 1,977.

• 2014 Technical Forecast for SPX is 1,921-1,935 and then to 2,055

The June 2013 uptrend channel is between 1,787 (support) and 1,921 (resistance). A breakout above resistancesuggests +134 points, rendering SPX upside targets to 1,921-1,935 (near-term) and then to 2,055 (medium-term).

However, repeated failures to clear above the recent highs of 1,885-1,897 as well as above the top of the June 2013uptrend channel at 1,921 can lead to another consolidation phase to initial support at 1,834-1,849 or the 50-day maand the mid-Jan/Mar lows. The bottom of the June 2013 uptrend channel at 1,787 as well as the 30-week ma andFeb upside gap at 1,774-1,776 remain key secondary support. Violation here can send SPX to a retest of its Feb 2014low (1,738) and below this would suggest -134 points or SPX downside target to 1,653. Note the bottom of 2011uptrend channel is at 1,678 and the extension of the pivotal March 2000/Oct 2007 breakout is at 1,600.

Transition to the next Structural Bull Market

Long-term structural trading range trend is entering into its late stage. The May 2013 break out at 1,6000 isimportant. However, it has to be validated before start of the next structural bull. Two possible scenarios are likely:

Scenario 1 (Bullish outlook) – The May 2013 break out above 1,600 is the next structural bull trend. Asuccessful test of this prior breakout via a Mid-term Election Year correction (10%-20%) reaffirms this view.

Scenario 2 (Bearish outlook) – The May 2013 break at 1,600 is a false breakout or a bull trap as SPX does notmaintain its prior breakout. Instead, this triggers a major selloff (20% to 30%-plus) as SPX violates itsprimary trend associated with the March 2009 uptrend (mid-1,400s). This action triggers a climatic sell offresulting in SPX declining sharply to 1,100-1,200 thereby setting the stage for the next structural bull.

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SPX Index – Monthly Seasonality Study (1929 – Present)

As we head into another Mid-term Election Year (2014), the strong rally over the past year may begin to subside as evidenced by the weakness in SPX from May to Sep during Mid-term Elections. Will this lead to yet another Mid-term Election low?

Since 1928/1929 the average intra-year pullback during Mid-term Elections (Year 2 of a 4-year US Presidential Election Year cycle) is -20.3%. This is more than the average intra-year correction of -16.7% during all years (1928-2013) and higher than during Year 1 (-17.6%), Year 3 (-14.6%) and Year 4 or Election Year of -14.3%. Also during Mid-term Elections: the percentage of time SPX experienced intra-year decline less than 10% is 23.8%, intra-year decline greater than 10% but less than 20% is 33.3% and intra-year decline greater than 20% is 42.9%.

Yearly %Time Period Duration Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Returns

All1929-2014 Mkt 84 years 1.25 -0.12 0.59 1.25 -0.12 0.72 1.52 0.69 -1.07 0.43 0.63 1.46 7.23

2.93 3.340.41 0.46

Bear1929-1949 Mkt 20 years 1.85 -0.28 -1.88 0.43 -1.06 3.23 3.09 2.66 -3.01 -0.81 -2.61 0.77 2.39

8.99 0.01

Bull1949-1966 Mkt 17 years 1.06 -0.42 1.16 1.20 -0.28 -0.40 2.93 -0.50 -0.20 0.97 2.27 2.17 9.96

2.03 5.51 0.20 0.55

Bear1966-1982 Mkt 16 years 0.88 -0.79 0.73 1.28 -1.44 0.06 -0.25 0.24 -0.36 1.17 1.29 0.84 3.65

0.06 3.000.02 0.82

Bull1982-2000 Mkt 18 years 2.30 0.96 1.45 1.33 1.35 1.19 0.55 0.78 -0.35 0.78 0.99 2.39 13.72

2.52 5.680.18 0.41

Bear2000-2014 Mkt 13 years -0.87 -0.87 1.91 2.00 -0.04 -1.40 0.42 -0.18 -1.18 1.27 0.79 1.20 3.05

-1.16 1.12-0.38 0.37

Secular Bear/Trading Markets (3) 0.62 -0.65 0.25 1.24 -0.85 0.63 1.09 0.91 -1.52 0.54 -0.18 0.94 3.03Average returns for three months 2.62 1.38(Jun, Jul & Aug vs. Nov, Dec & Jan) 0.87 0.46

Secular Bull Markets (2) 1.68 0.27 1.31 1.27 0.54 0.40 1.74 0.14 -0.28 0.88 1.63 2.28 11.84Average returns for three months 2.27 5.59(Jun, Jul & Aug vs. Nov, Dec & Jan) 0.19 0.47

First Year (year 1) 0.80 -2.10 0.49 2.40 2.00 0.49 2.29 -0.07 -1.64 -1.31 0.54 0.25 4.132.71 1.58

Mid-term Election (year 2) 0.69 0.14 0.08 0.67 -1.06 -1.24 0.62 -0.64 -1.19 2.59 2.02 1.76 4.44-1.26 4.47

Pre-election Year (year 3) 3.33 1.29 0.67 2.21 0.09 1.32 0.57 0.43 -1.25 0.74 -1.46 2.41 10.352.32 4.28

Election Year (year 4) 0.30 0.14 0.69 -0.75 -1.66 1.77 1.97 2.85 -0.40 -0.29 0.05 1.45 6.126.59 1.80

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Stock Market Psychology – Fear, Greed, and Hope

Optimism

Excitement

Thrill

Greed/Euphoria – 1st Half 2007

Anxiety

Denial

Fear – 1st Half 2008

Desperation

Panic

Capitulation

Despondency – 4th Qtr 2008

Depression – 1st Qtr 2009

Hope

Relief

Optimism – 1st Qtr 2012

Are we here?

Greed/Euphoria – 2014

Excitement

Thrill

2nd Half 2015

1st Half 2015

2016/early 2017

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4 Stages of a Bubble

Accumulation (Stealth) Phase Awareness Phase

Mania/Speculative/Melt Up Phase

Smart Money –Insiders, Contrarians, and Deep Value Investors

Blow off PhaseTime

Stage I – 2009 to 2010

First deep correction

Price

Delusion

Bear Trap

Media/Press Attention

Are we here?

"New Paradigm"

Optimism

Greed

Stage II – 2011 to 2013

Institutional Money –Professional traders, Money Managers, Hedge Funds, and etc.

Public Money -Retail Investors

Return to "Normal"Denial

Bull Trap Fear

Despair

Capitulation

Historical Mean

Return to the Mean

Acceleration

Stage III – 2013 to 2014 Stage IV – 2015 to 2016?

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SPX Index – Secular Trend (1900 - 2020) – 2 Possible Scenarios

7 structural bull: 1982-2000, 1949-1966, 1921-1929, 1896-1906, 1861-1881, 1843-1853, 1815-1835

8 structural bear/trading range: 2000-present, 1966-1982, 1929-1949, 1906-1921, 1881-1896, 1853-1861, 1835-1843, 1802-1815

1

10

100

1,000

10,000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Secular Bear Trading Range

1906-1921

Secular Bull1982-2000

Secular Bear Trading Range

1966-1982Secular Bull1949-1965Secular Bear

Trading Range1929-1949

Secular Bull1921-1929

Secular Bear Trading Range2000-Present

For the past 200+ years, SPX has consistently alternated between periods of long-term bullishness via secular bull trends and periods of long-term bearishness via secular Bear/Trading range trends without ever missing a cycle.

2014-2015

2016-2017

Scenario 1 = May 2013 breakout at 1,600 is successfully retested thereby confirming the start of a structural bull.

Scenario 2 = Failure to maintain 2013 breakout (1,600) suggests a final sell off and then the next structural bull.

Secular Trading Range Market 2000-2020

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Dow Jones Industrial Average – 1964-1984 and 1994 to PresentAlthough no two markets are the same the 1964 to 1984 market and the 1994 to present appears to be strikingly similar. That is, the 1966-1982 structural sidewaysmarket (stagflation) was preceded by a spectacular Nifty-Fifty bubble burst. In addition, geopolitical events (OPEC Oil embargo) created extreme volatility from a macroperspective. If we fast forward to the 1994-present market we have experienced three bubble bursts including the 2000-2002 Tech/Telecom bubble, the 2007-2009Real Estate/Credit/Financial bubble and the 2008-2009 Commodities bubble. From a macro/geopolitical perspective the Sovereign Debt crisis in Europe and theCurrency problems in Emerging Markets have led to volatile conditions. We also find it uncanny that both markets generated competing technical formations includinga bearish Broadening Top (higher highs and lower lows pattern) and a Head and Shoulders Bottom. Towards the later stage of the prior Stagflation cycle aHead/Shoulders Bottom breakout and the negation of a Broadening Top during 1982/1983 triggered the next major trend. A final pullback of nearly -17% to 1,082(6/84) confirmed the next structural bull trend as DJIA enter into a parabolic move of +153% from 6/84 to 8/84. Could the recent breakout at 14,198 (3/13) and thesubsequent negation of the Broadening Top at 16,577 (12/13) signal the end to the 2000-2014 structural sideways trend and the start of the next structural bull?

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S&P 500 Index – 1964-1984 and 1994 to PresentSimilar to the DJIA study in the previous page we find it intriguing that the current market conditions over the past decade or so closely parallels that of the 1964-1982market, at least from a macro/geopolitical/tail risk as well as technical perspective. Although it may appear that the past 14-plus years have been much more volatileand unpredictable than the prior 1966-1982 secular trading range market the duration and magnitude of trading swings are comparable. That is, in the past market itrequired over 16-plus years to repair the damages incurred from the Nifty-Fifty blowup and the geopolitical turmoil in Middle East before a new structural bull marketcan begin in 1982. Today, the SPX is working through nearly 14-plus years of the unwinding of the excesses from the past cycle as well as attempting to resolve thegeopolitical/macro crises in Europe and Emerging Markets. Note that at the height of the prior Broadening Top pattern it extended to an extreme high of 147 from aextreme low of 45 resulting in a 3.22 ratio. Last year it traded to an extreme high of 1,600 from a low of 667 resulting in a ratio of 2.4 or slightly less that the priorcycle and hence a less volatile market than the past. It is important to recognize that in the past a major breakout off of a multi-year technical pattern were confirmedvia a subsequent pullback back to its prior breakout. Without a confirmation it is difficult to validate whether this was a successful breakout or a bull trap. In Jan 1983SPX broke out at 146. This led to a nice rally towards 172.76 in Jun 1983 before a pullback to its prior breakout at 147 in Jul 1984. A successful test solidified thebreakout and reaffirmed the next structural bull trend. As we fast forward today do we also need to retest the May 2013 breakout at 1,600 to confirm a structural bull?

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SPX Index – Long-, Medium- and Short-term Trends

The primary trend is the Mar 2009 uptrend channel now rising at 1,468 and 1,840. Theheight of the channel is 372 points. A breakout above 1,779 (Jul 2013) renders upsideto 2,151. A second uptrend from Oct 2011 is between 1,678 and 1,905. Breakoutabove 1,905 renders upside to 2,132. Key support is 10/30 week ma at 1,842/1,796.

The Mar 2009 SPX rally is over 5 years old, with gains of 182%. The prior two bull rallieswere: 1994-2000 (5 years & 11 months and 248%) and 2002-2007 (5 years and105%). SPX rally can sustain as long as it retains key supports: 1,738-1,779 (10-mo ma& Feb low), 1,600 (2013 breakout), and 1,455-1,545 (2009 uptrend & 30-mo ma).

A third uptrend channel has developed from Jun 2013 (1,787 and 1,921). A breakout above 1,921 suggests +134 points or upside to 2,055. Key initial support is at1,834-1,849 or the 50-day ma and the mid-Jan/Mar lows. Break down here suggests1,774-1,787 or the 150-day ma, Jun 2013 uptrend and 2/7/14 upside gap. Violationhere opens the door for a deeper correction towards 1,738 and then 1,600-1,653.

The Feb to Mar 2014 rally of 8.44% has led to an overbought condition and anegative outside day on 4/4/14 warns of another trading range between 1,845.44and 1,884.97. Since the height is 50.53 points a break above 1,884.97 renders upsideto 1,935.5. Violation below 1,845 also suggests downside to 1,794.47.

2 Uptrend Channels

Mar 2009 uptrend channel = 1,468-1,840Breakout above 1,840 +372 or 2,212Oct 2011 uptrend channel = 1,678-1,905Breakout above 1,905 +227 or 2,132

Breakdown below 1,468 1,096Break down below 1,678 1,451

Key support = 1,834-1,849, 1,774-1,787, 1,738 and 1,600-1,653Key resistance = 1,885-1,897, 1905-1,935, 2,055, 2,107-2,132,2,212, and 2,509

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US Equities – SPX, Russell 3000, Russell 1000 and NDX 100

The Russell 3000 Index (RUA) breakout above 965 in May 2013 can extend the rallyto the top of its 2009 rising wedge (1,169). Since RUA is one of the broadest USindex and the first to breakout above its wedge it may also be a good barometer ofUS markets. Key supports:1,043-1,068, 1,006, 990, 965, 920, 904, and 858.

SPX Index has broken out above pivotal resistance at 1,600 (May/Jun 2013)or above the top of its 2000/2007 uptrend. This breakout renders upside to1,920 (near term), 2,040 (medium term) and 2,500 (long term). Keysupports are:1,834-1,849/1,774-1,787, 1,738, 1,678, 1,600, 1,545, 1,455.

The Russell 1000 Index, which is a proxy for the large-cap/mega-cap USstocks, also broke out above key resistance in May 2013 at 887. Thisbreakout suggests next resistance at 1,141, or the top of its 2009 risingwedge pattern. Key supports: 993, 971-978, 937, 859-887, and 827-847.

The NASDAQ 100 has cleared above the top of its 2002 uptrend channel (2,800) aswell as above its 50-61.8% retracement (2,806-3,280) from the 2000–2002 decline.A positive outside month (Feb 2014) also support a retest of the 76.4% retracementat 3,867 (near term), a channel breakout projection to 4,240 (intermediate) and theMar 2000 record high at 4,816 (long term). Supports: 3,415-3,419, 3,254-3,318,3,218, 2,925, 2,898, 2,825-2,836.

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US Equities – Dow Jones Industrial Average, Dow Jones Transportation Average, NYSE Composite and Russell 2000

The Dow Jones Transportation Index has now surpassed the top of its broadeningtop pattern at 7,291 (point E). A confirmed breakout can lead to a retest of the topof its 2009 wedge (8,431). Key supports: 7,010 -7,069/6,525/5,970/5,487.

The Dow Jones Industrial Average remains a laggard (negative divergence) as itstruggles near the top of its broadening top (point E-16,637). A breakout can extendthe rally to the top of its 2009 rising wedge (17,246). Initial support is 15,341-15,872.Secondary support is 14,719 and 14,198-14,207 or the 30-mo ma and the 2007 high.

A positive outside month on Feb 2014 suggests NYSE Composite Index will now beginto catch up to peers. The ability to clear above its record new all time high of 10,387can sustain the rally to next key resistance along the top of the 2009/2010 uptrendchannels (11,694/12,432) and 14,110. Supports:10,048-10,387, 9,595,8,718-8,886.

The Russell 2000 Index is now hovering near the top of its 2000 uptrend at 1,163.A break out here can extend the rally to 1,348 or to the top of its 2009 uptrendchannel. Key supports: 1,163, 1,118, 1,078-1,083, 1,023, 991, 936 and 856-869.

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International Equities–Nikkei 225, EAFE, EM & Shanghai SSE

The MSCI EAFE has broken above key resistances at 1,826/1900 or its 2011 high, its61.8% retracement from 2007–2009 decline and the third downtrend. This confirmsa Fan pattern and negates a head-and-shoulders rendering upside targets to 2,045and then 2,399. Key supports: 1,850-1,870/1,789-1,814/1,700/1,591-1,616/1,500.

Last year the Japanese Nikkei 225 surge above its 1996 downtrend (15,734) and itsMay 2013 high (15,943). However, an overbought condition led to a normalconsolidation back to as low as 13,996 (Feb 2014). Nonetheless, a confirmedbreakout renders upside to 18,300 (2007 high), and then 19,207 (38.2% retracementfrom the 1989–2008 decline). Key supports: 13,996-14,200/13,750/13,188/12,416.

An inflection point is near as the outcome of two unresolved technical patterns mayhelp to determine the next major trend for MSCI Emerging Markets. The first is asymmetrical triangle (846 and 1,100) dating back to 2007/2008. The second is eithera 2010 symmetrical triangle or a head/shoulders top. Key neckline support is 878-883. Key resistance coincides with 2011 downtrend at 1,024 and then 1,048-1,085.

The Shanghai Composite SSE Index remains in a 4-plus year downtrend channelbetween 1,569 and 2,388. The 10-mo/30-mo ma at 2,059/2,093 remains key initialresistance. A breakout here helps to alleviate the selling and suggests a retest ofthe downtrend and Feb 2013 high at 2,388-2,445. A surge above this supply zonetriggers a sustainable recovery to 2,717/2,930/3,368. Supports: 1,985-2,015/1,946-1,974/1,850/1,600-1,665/1,533.

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Currencies – US Dollar Index, Euro and Yen

For the past 6 years a large symmetrical triangle has led to the narrowing of therange for USD between 74.5 and 86. Last year's breech of a 3-year rising wedgepattern at 81hints of a weaker US Dollar. A 2-year head/shoulders top formation alsowarns of a deeper correction if key support at 78.6-79 is convincingly broken.

For the past 2 years US Dollar Index has been confined to a trading range between78.6-79 and 84.10-84.75. Recent violation of its trading support at 80.5 confirms a6-month triangle breakdown and warns of a retest of the 2012/2013 lows at 78.6-79. Below 78.6 suggests 74.5 and 72.5. Key initial resistance is at 81.5-82.5.

EUR/USD still retains a large triangle/head and shoulders top pattern for the past 10years. However, a triangle breakout above 1.345 in 2013 has ignited a strong rallythat is challenging the pivotal 2008 downtrend and the 61.8% retracement of the2011–2012 decline at 1.38-1.39. Breakout here renders upside to 1.4255 and1.4939. Failure to breakout suggests a pullback to 1.3475-1.35 and 1.32-1.327.

The Japanese Yen has rallied sharply from its 10/11/11 low of 75.55 but is nowencountering formidable medium-term resistance at 105.5910-106.17corresponding to the 1998 downtrend and the 61.8% retracement of the 2008–2011 decline. A breakout here renders upside to 112.6880 or the 76.4%retracement and possibly to 124.16 or Jul 2007 highs. Key supports now rise to100.74-101.17 (near term), 94.98-96.55 (medium term) and to 90.06 (long term).

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Commodities – CRB Index, Gold, Crude Oil and Copper

A 3-year descending triangle and/or head and shoulders top pattern warn of a majortop for Copper. The 2007/2011 lows and the 50% retracement from the 2008–2011rally at 2.85-3.00 is key support. A break down here warns of downside risks to 2.65-2.73, 2.54 and as low as 2.04. A breakout above 3.5-3.75 signals a recovery phase.

Has the super bull cycle in commodities ended? Despite the strong selling over thepast few years CRB Index still retains its primary 2009 uptrend (257) as well as the61.8% retracement (232.5) from the 1999-2008 rally. A Jan 2014 positive outsidemonth and 2-mo flag pattern can trigger a rally to 322-332 and possibly to 345-371.

After falling 34% from its Oct 2013 high (1,795) Gold has found a bottom at 1,182-1,183 (Jun 2013/Jan 2014 lows). A double bottom/top has developed between 1,182and 1,428. Above 1,428 suggests upside targets to 1,488, 1561, 1650-1,675 and1,912. Below 1,182 renders downside risks to 1,151, 971-1,015, 936 and 681-750.

A successful test of key support along the low-to-mid 90s or its 2012 uptrend has ledto another triangle pattern for WTI Crude Oil. Trading above 104 confirms thisbreakout and suggests a retest of the 2011/2012/2013 highs at 110-114. Note thatthe 10-wk ma (100) has just crossed above its 30-wk ma (99) confirming a potentialgolden cross buy signal. Key initial support is 96-97 and then 91.24-91.77. Breakdown below 91.24 opens the door for a deeper decline to the low-to-mid 80s.

Double Bottom or Double Top Pattern?

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Fixed Income – US 10 and 30 Year Treasury Yields (TNX/TYX)

The top half of the chart is the SPX monthly chart and the bottom half is the monthly spreadsof 10-year US Treasury yields minus the 2-year yields. In the past when 10-2 year spreadsbottomed (May '00 and Nov '06) and began to expand sharply this has led to a major SPXpeak nearly 3-11 months later (Aug '00/Jul '07). Spreads recently bottomed on Jul' 12 and hasexpanded for the past 21 months. Is the QE program extending the normal US business cycle(4-6 years) and creating the next bubble? If so is the high at 2.813 the next inflection point?

TNX remains in a downtrend channel since early 1980s. However, two conflictingtechnical signals have created uncertainties in rates. A monthly golden cross buysignal (Sep 2013) hints of a retest of the top of the channel (3.80%). However, anegative outside month (Jan 2014 ) also warns of a decline to its 30-mo ma (2.13%).

TYX or 30-year Treasury yields have stalled near the top of its long term downtrendchannel (3.93%) earlier in the year. This differs from the 10-year (TNX), which is stilltrading far below the top of its channel (3.80%.) Since the 30-year is sensitive tostructural forces does this imply that the US interest rates may be peaking?

The outcome of 2 trading ranges can help to decide the near-to-intermediate termUS interest rate trends. A 2-month trading range is between 2.57-2.60% and 2.79-2.82%. A breakout above 2.82% suggests upside to 3.04-3.08%. A breakdownbelow 2.57% renders downside to 2.31-2.42%. A 1-year trading range is between2.42-2.47% and 3.01-3.04%. A breakout above 3.01-3.04% renders upside to3.62%. A breakdown below 2.42-2.47% hints of downside to 1.84%-1.87%.

Tech/TelecomBubble

Financial Bubble QE Bubble ???

2.813

30-year Treasury Yields peakedduring Dec 2013/Jan 2014?

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S&P 500 Sectors – Consumer Staples and Telecom ServicesS&P Consumer Staples has achieved its technical targets of 440-445 based on thebreakout of its 1999 uptrend channel in early 2011. Repeated failures to stay aboveits breakout may warn of a consolidation phase towards key support associatedwith the bottom of its 2009 uptrend channel and its 30-month ma at 385-389.

Relative strength has weakened in the past few months and it has broken its 2000uptrend confirming a major breakdown and lost of its market leadership role.

S&P Telecom Services remains weak as evidenced by the 2009 broadening toppattern and the onset of a 2-year head/shoulders top. The convergence of the 10-mo and 30-mo moving averages may signal an inflection point. Key supportresides near its 30-mo ma at 153.5 and then 140-146 or the 2012 and 2013 lows.

A descending triangle in the relative strength since 2001 does not bode well for thesustainability of the recent Telecom Services rally. Rather, the violation of thebottom of channel signals the next stage of its underperformance cycle.

Achieved its target of 440-445 based on theuptrend channel breakout near 320-325during 2011. A consolidation phase wouldhelp to alleviate an overbought condition.

2000 uptrend breakdown warns of a lackof leadership. Headed for a retest of theextension of the 2002 downtrend.

Broadening top pattern suggeststhere is further volatility.

Falling wedge is also nearing an inflection as it teststhe bottom of its 2002/2003 downtrend channel.

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S&P 500 Sectors – Energy and FinancialsS&P Energy completed a 5-year triangle breakout in Jan 2013 rendering a retest of679-680 or the May 2008 all-time high as well as the top of its 2012 uptrendchannel. The 10-wk/30-wk moving averages now converging along 631-634 can actas key initial support and then 598-600 or the Jan 2014 low and the 2013 breakout.

Relative strength trend has yet to confirm broad participation within the Energysector. A descending triangle pattern still suggests investors remain selective.

S&P Financials continues extend its gains after breaking out above its 38.2%retracement from 2007-2009 at 240-245. It is now challenging its 50%retracement (295) and the extension of the 1998 uptrend (300). Above whichsuggests the61.8% retracement (346). Key support is 276-288 and then 238-245.

Since the 2009 low, the relative strength trend has steadily improved as evidencedby the 2009 downtrend breakout and rising uptrend from 2009 bottom. However,it appears to be approaching an important intermediate term resistance zone.

Testing the half way mark (295) of its 2007-2009 decline.

Nearing a test of key resistance associated with theextension of the 2011 technical breakdown.

A large symmetrical triangle breakout last yearis technically constructive as this signals asustainable rally to key resistance at 679-680.

Relative strength weakness still warns of selective buyingin the S&P Energy sector. However, the dramatic relativeunderperformance from last year may be subsiding.

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S&P 500 Sectors – Utilities and IndustrialsS&P Utilities continues to retain the bottom of its 2009 uptrend channel (188) aswell as its 30-mo ma (190) preventing a major breakdown. A surge above its2013/2014 highs near 210.5-211.5 can trigger a rally to 217-225 or the2000/2007 highs and then to 225-232. Key support is198-200 and then 188-190.

Two longer-term relative strength trend lines have been broken. These technicaldevelopments warn of longer term underperformance in Utilities against its peers.

S&P Industrials has broken out of 2 key resistances (381/337) last year renderingupside targets to key resistance along the top of its 2009 channel (460) as well asthe 2000 internal uptrend (455). The ability to breakout here projects longer termtargets to as high as 631. Key initial support is at 418-427 and then at 360-381.

A symmetrical triangle relative strength breakout late last year reaffirms the relativestrength outperformance trend of this economically sensitive group.

5-year triangle pattern relative strength breakoutsuggests the emergence of leadership..

Nearing key resistance at 450.Continues to trend higher via its 2009 uptrendchannel between 188 and 225.

Relative strength breakdown is a negative. Needs tosurge above the prior breakdown to signal a recovery.

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S&P 500 Sectors – Healthcare and TechnologyS&P Healthcare has surpassed its target (610), which is based on the 2012breakout above 415. A Feb 2014 positive outside month pattern hints of the meltup phase to the 2009 rally. This parabolic move is strikingly similar to the 1995-2000 rally. Key initial support continues to rise to 662-672 and then to 632-639.

Relative strength trend is approaching its crucial 2001/2009 highs. Failure to breakout, warns of the start of a correction. On the other hand, a surge above priorhighs confirms an ascending triangle breakout and signals the next major rally.

S&P Technology has cleared above its 38.2-50% retracement (483/580) from the2000-2002 decline and above its 2004 internal trendline, paving the way for aretest of the top of 2009 uptrend channel (635) and its 61.8% retracement at 676.Initial support moves up 556-565 or the 10-wk/10-mo ma and then 500-510.

Relative strength has stabilized after declining from its 2012 high. This recoverysuggests investors are beginning to favor this economically sensitive sector probablyat the expense of other cyclical sectors and stocks.

A breakout above 2004 trendline at 600 suggests asustained rally towards 635-676.

Recovering from its 2012-2013 underperformance cycle

as it retests the top of its 12-year uptrend channel.

Testing the top of a major 13-year ascendingtriangle pattern.

Extended and trading at overbought levels. Recommendmoving support up to 662-672 and 632-639.

S&P 500 Sectors – Materials and Consumer DiscretionaryA symmetrical triangle breakout at 238 is technically relevant as this renders targetto 420 for S&P Materials. In addition, recent ability to find key support along the 30-wk ma (278) and a subsequent breakout above the medium-term resistance at289.01 or the May 2008 high suggests a sustainable recovery in this cyclical sector.

The relative strength has improved as evident by breakout of its 2012 downtrend.However, a larger triangle pattern still remains intact over the past 5-plus years.

S&P Consumer Discretionary achieved its technical target of 520-525 based on theearly 2012 breakout at 330 in late 2013. A subsequent correction during Feb 2014to 485 +/- 10 and its ability to maintain above the 30-wk ma (509) have preventeda deeper correction. A consolidation phase is now likely near to intermediate term.

The relative strength trend continues to rise, but no longer at the same rate/paceas in the past. The violation of its 2008 uptrend suggests a slowing of theoutperformance cycle and an imminent test of its 2010 uptrend.

Relative strength has weakenedas it violated its 2008 uptrend.However, it still holding on toits 2010 internal channel.

Recent consolidation have alleviatedan overbought condition allowing forthe continuation of its steep 1-plusyear uptrend channel.

A 5-plus year Symmetrical Triangle breakout is technicallysignificant as this signals a sustainable recovery.

2012 downtrend breakout suggests aretest of the pivotal 2008 downtrend.

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% of S&P 500 Stocks at 52-wk Highs vs S&P Stocks 52-wk LowsThe % of S&P 500 Stocks at 52-wk highs indicator has fallen from its Jun 2013highs (41%) to a current reading of 13.51%. This pick up probably suggestsanother modest rally over the near to intermediate term. Despite SPX setting newprice highs, a series of lower highs since Jun 2013 still warns of a negativedivergence as the indicator is still not keeping up with the recent SPX price highs.

The S&P 500 stocks at 52-wk Highs minus Lows (13.18) is trading at the mid-pointof its yearly range of 67.00. The top of the range is +150 to +210 and the bottomis -8.5 to -10.5%. The ability to rally from the bottom of its trading range supportthe basis for another modest SPX rally (5%-8%) to retest the top of its range.

% of S&P 500 Stocks above 200-day Moving Avg. and SPX/VIXThe % of S&P 500 Stocks trading above its 200-day moving average (82.06%) isshowing relative strength as it has quickly repaired its recent downturn via abreakout above its May 2013 downtrend. This this technically constructive as thissignals a change in leadership back to SPX and a potential retest of prior highs.

SPX Volatility Index (VIX) remains in a 1-year trading range between 11.05-11.69and 21.34-23.23. A breakout above 21.34-23.23 suggests 27.73-31.28 and ashigh as 46.88-48.20. A recent breakdown below 13.44-13.46 suggests downsideto 11.05-11.69 triggering a modest SPX rally. Below 11.05 confirms breakdownand downside to 9.88-10.06 and possibly to 8.89-9.39 implying a strong SPX rally.

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% of NYSE Composite and DJIA stocks > 200-day Moving Avg.The US listed market as represented by % of NYSE Composite stocks above the200-day ma (69.79) also violated its 2011 uptrend. The ensuing breakdownquickly bounced off of the bottom of its triangle pattern preventing a deepersetback. A technical rally is now attempting to clear its Jan/May 2013 downtrend.

After struggling the % of DJIA trading above its 200-day ma (86.67%) has nowquickly reversed direction from its -1 SD (56.43) and is trading above its priorbreakdown and is close to challenging its Feb 2012 and May 2013 reaction highs.Is this the start of a sustainable recovery or is this an oversold technical rally.

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% of S&P 100 and NASDAQ 100 stocks > 200-day Moving Avg.The % of S&P 100 Stocks trading above its 200-day ma (67.01%) violated its 2011uptrend and mean level (89.92) but quickly found key support near its -1 standarddeviation (55.18). The mega-cap stocks is now returning to its leadership role as itis now above its prior breakdown and its May 2013 downtrend.

Despite the sharp setback during Jan-Feb 2014 the NASDAQ 100 stocks remainsrelatively stronger than many of its US peers as evidenced by its ability to retain its2011 uptrend as well as maintain its 3-year mean (66.93). A surge above the highs70s may signal the return to a leadership role, at least against US peers.

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% of Mid-Cap and Small-Cap stocks > 200-day Moving Avg.Since the Mid-cap market has been a market leader over the past 10-plus years,does a breakdown of its 2011 uptrend last year signals a matured US stock rally?Despite the mid-cap stocks trading to record highs, the % of Mid Cap stockstrading above its 200-day ma (63.57%) has yet to confirm its May 2013 highs .

A negative divergence is evident in the Small-cap market as it has broken its key2011 uptrend in the low 60s, which is also near its 3-year mean (61.71). Thefailure to reverse a series of lower highs and lower lows warn of a maturing trend.The current oversold rally from Feb 2014 low is now nearing its prior breakdown.

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Global Markets/QE Programs/9-inning Baseball Game Analogy

2nd to 3rd Inning

4th to 5th Inning European Equities – MSCI EMU IndexECB LTRO program – Long Term Refinancing Operation 2-stage program – stage 1 (12/21/11) and stage 2 (2/28/12)

Start of the Game (recovery) – (3/09)

Emerging Markets Equities - (MSCI Emerging Markets Index)

Japanese Equities - Nikkei 225 IndexBank of Japan – Kuroda and Prime Minister Abe Asset Purchase program – 4/13

US Equities - SPX IndexTARP - Troubled Asset Relief Program (10/08), QE1 (11/08), QE2 (11/10), Operation Twist (9/11), QE3 (9/12 and 1/13) , QE3 Tapering announced (12/13)

End of the Game – Bottom of the 9th Inning – (???)

7th to 8th Inning?

1st Inning

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US Economic/Business Cycle, Sector Rotation & Duration

Early Expansion

Middle Expansion

Late Expansion

Early Contraction

Late Contraction

Transportation

Technology

Services

Capital Goods Industrials

Basic Materials

Energy

Consumer Staples

Utilities

Financials

Consumer Cyclicals

Early Expansion – 12 to 18 months

Inflation = Continues to fall

Interest Rates = Bottoming out

Middle Expansion –12 to 18 months

Inflation = Bottoming out

Interest Rates = Rising modestly

Late Expansion – 12 to 18 months

Inflation = Rising

Interest Rates = Rising rapidly

Early Contraction – 6 to 9 months

Inflation = Rising less strongly

Interest Rates = Peaking

Deep Contraction – 6 to 9 months

Inflation = Flat to Declining

Interest Rates = Falling

1 complete cycle – 48 to 72 months

or 4 to 6 yearsMarch 2009 2015-2016?2014

Healthcare

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Peter LeeUBS Financial Services Inc.peter.lee@ubs.com212-713-8888 Ext 01