ubs technical analysis s&p 500 march 2014
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UBS Technical Analysis S&P 500 March 2014TRANSCRIPT
S&P 500 Sector Rotations and Relative Performances
Peter Lee – Chief Technical Strategist CIO Wealth Management Research
This report has been prepared by UBS Financial Services Inc. (“UBS FS”). All charts and data are sourced from Thomson Reuters and UBS CIO WMR as of 14 March 2014
17 March 2014
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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 Bull Rally
Accumulation (Stealth) Phase Awareness Phase
Mania/Speculative/Melt Up Phase
Smart Money – Insiders, Contrarians, and Deep Value Investors
Blow off Phase
Time
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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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 years March 2009 2015-2016? 2014
Healthcare
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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 Index ECB 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 Index
Bank of Japan – Kuroda and Prime Minister Abe Asset Purchase program – 4/13
US Equities - SPX Index
TARP - 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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S&P 500 Sectors – Relative Performance from 3/6/09 (666.79)
From the March 2009 market bottom or the beginning of Stage I of the Bull rally or the
Accumulation (stealth) phase smart money began to buy into the new leadership sectors (Consumer Discretionary, Industrials and Technology) as well as the battered sectors (Financials) from 20070-2009 decline. They avoided the former leaders
(Energy and Materials) from the prior 2002-2007 bull rally and the defensive sectors (Utilities,
Telecom Services and Consumer Staples).
Consumer Discretionary
Financials
Energy
Industrials
Info Technology
Materials
SPX
Healthcare
Consumer Staples
Utilities
Telecom Services
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S&P 500 Sectors – Relative Performance from 10/4/11 (1,074.77)
Since the October 2011 bottom or into heart of Stage II or the awareness phase of the Bull rally Institutional investors
broaden their buying by sponsoring economic sensitive sectors (Consumer Discretionary and Industrials). They also
favor a financial recovery via Financials and began to accumulate Healthcare as a way to play the growth call.
They avoided most of the defensive sectors such as Telecom Services, Utilities and Consumer Staples.
Consumer Discretionary
Financials
Healthcare
Energy
Industrials
Materials
SPX
Info Technology
Consumer Staples
Utilities
Telecom Services
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S&P 500 Sectors – Relative Performance from 6/24/13 (1,560.33)
As can be expected, since the June 2013 bottom or the start of Stage III or the Mania phase of the Bull rally the S&P
sectors that have outperformed SPX are heavily concentrated in economically sensitive groups with the lone exception of S&P Healthcare which is a momentum, growth call. Remember at this stage the Media/Press have already touted the global economic recovery call as well and retail
investors are now returning to the marketplace as they fear missing the move. Note that at the matured phase of a
major bull rally the deeper cyclical sectors and momentum/growth securities tend to dramatically
outperform SPX but will soon begin to lose leadership to the defensive sectors and the market breadth begins to
narrowed as the market nears its peak.
Healthcare
Industrials Materials
Consumer Discretionary Info Technology
Financials
SPX
Energy
Utilities
Consumer Staples
Telecom Services
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S&P Sectors Ratio Analysis – S&P 500 Financials and Energy
Higher highs on Financial Sector is
keeping pace with the higher highs on SPX.
A Fan formation breakout may signal a sustainable recovery basically in line
performance against SPX.
Lower highs on Energy sector confirms a negative divergence to SPX.
Major multi-year breakdown warns of an extreme underperformance over
the intermediate term basis.
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S&P Sectors Ratio Analysis – S&P 500 Consumer Discretionary and Consumer Staples
Oversold condition is developing. A successful test
of the 2011 bottom may trigger a technical rally back
to the prior break down.
Higher highs on the S&P Consumer Staples remains intact but a potential top may be developing as the
relative strength has dramatically deteriorated.
Higher highs on S&P Consumer Discretionary suggests that
although the March 2009 rally is maturing it is still sustainable,
intermediate term.
It appears the recent Jan-Feb weakness may hint of a
consolidation/corrective phase rather than a major top.
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S&P Sectors Ratio Analysis – S&P 500 Healthcare and Utilities
Although higher prices are still possible, over time S&P Healthcare
sector is extended/overbought. Recent failure to breakout above 2009
uptrend channel may signal a consolidation back to its prior relative
strength breakout levels.
Is the improving relative strength in S&P Utilities over the past 2 months a
reflection of selling pressure temporarily subsiding? Or is this a selling
climax/capitulation? An oversold rally is possible back to prior breakdown.
However, it is too early to confirm a sustainable intermediate term recovery.
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S&P Sectors Ratio Analysis – S&P 500 Materials and Technology
The 2011 downtrend breakout as well as a secondary breakout above prior breakdown support the basis for a recovery to the 2012 highs.
Higher highs in S&P Materials still
suggest a sustainable rally.
A successful triangle pattern breakout had led to an intermediate term recovery.
However, it is still trading below its prior breakdown thereby suggesting continued
selectivity in this group.
Higher highs indicates investors are still
interested in the S&P Technology sector but
relative strength is showing mixed readings
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S&P Sectors Ratio Analysis – S&P 500 Industrials and Telecom
A recent failure to surpass its 2010 highs has triggered a near term correction over the past two months. A pullback to the prior 2013 breakout be a key test of support.
Lower lows in S&P Telecom Services sector and negative divergence to SPX
warn of continued selling pressure.
Relative strength breakdown last year and further selling to the start of the New
Year shows no signs of abating.
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S&P 500 Sectors – Relative Strength for Energy and Materials
Since Oct 2013 bottom S&P Energy Sector has negatively diverged from SPX from a relative
performance perspective as evident by the lower lows (Energy) versus higher highs (SPX) . However,
a potential head/shoulders bottom, if confirmed, suggests the severe Energy underperformance may
begin to subside, near term.
Despite the recent negative sentiments in the commodities arena, the S&P Materials has
surprisingly kept up with the SPX. In fact, since Oct 2013 low the higher highs and higher lows closely track the SPX performance, at least on a
near-term basis.
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S&P 500 Sectors – Relative Strength for Industrials and Consumer Discretionary
The S&P Industrials sector appears to be leveling off after a sharp earlier in the year but still retains a slightly rising higher high formation. This recent decline hints of a consolidation phase to alleviate an overbought condition before the resumption
of the outperformance cycle.
Similar to S&P Industrials sector the S&P Consumer Discretionary sector retains its higher high
formation thereby suggesting that the Jan-Feb pullback is a minor correction within an over all
outperformance cycle.
S&P 500 Sectors – Relative Strength for Consumer Staples and Healthcare
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The S&P Healthcare sector retains its higher high formation thereby suggesting the recent Mar
2014 downturn is an overbought condition and a consolidation phase within a continued primary uptrend. However, note that given the extent of the prior rally it is reasonable to expect a deeper correction than normal possibly back to the Jan
2014 reaction high.
Consumer Staples sector is diverging against its price chart since Sep/Oct 2013 timeframe. Although it has not violated its Sep/Oct 2013 lows a series of
lower lows warns of a loss of leadership and hence underperformance against S&P peers.
S&P 500 Sectors – Relative Strength for Financials and Information Technology
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Headed into Year End 2013 S&P Financials sector closely tracked SPX. However, in the past 2 months it appears that S&P Financials
are slightly weaker than SPX as it has recently slipped below its Jan 2014 highs.
S&P Technology sector is confirming its higher highs from both a price and relative strength
perspectives. Although it has slipped in recent weeks the ability to maintain its prior breakout
allows for an outperformance cycle.
S&P 500 Sectors – Relative Strength for Telecommunication Services and Utilities
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The S&P Telecom Services sector remains one of the worst S&P sectors last year and this
trend continues into the New Year. There is no signs of a sustainable recovery yet.
The near term technical picture for the S&P Utilities is beginning to show early signs of
stabilization as evident by a technical breakout in in early Feb 2014 and a
subsequent retest of this breakout in early March 2014. Is the recent relative strength improvement in S&P Utilities indicating US interest rates will be more muted this year?
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Contact Information
UBS Financial Services Wealth Management Research NY, NY 10019 www.ubs.com
Peter Lee UBS Financial Services Inc. [email protected] 212-713-8888 Ext 01