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S&P 500 Index May Drop 15% Ove Next 10 Weeks, UBS Says: Technical Analysis
The Standard & Poor’s 500 Index may fall as much as 15 percent in the next 10 weeks and investors should use further gains in equities as an opportunity to sell, technical analysts at UBS AG said.
UBS analysts Michael Riesner and Marc Mueller reiterated their forecast that the U.S. benchmark gauge may decline to between 944 and 1,000, in a report dated yesterday. The gauge retreated for the first time in four days yesterday, slipping 0.1 percent to 1,113.84, after consumer confidence slid to a five-month low.
“Anticipating another strong tactical down-leg below 1,000 in the S&P 500, we are sticking to our recent comments and would use any kind of strength in July to sell,” Zurich-based Riesner and Mueller wrote.
The analysts looked at the McClellan oscillator to determine the S&P 500 is “approaching overbought extremes.” The McClellan oscillator is a market breadth indicator based on exponential moving averages of advance/decline lines. The current level of the measure is 239.59, which is in the overbought zone, Bloomberg data shows.
“Our cyclical models are still pointing to an important low in the VIX index in late July/early August, which implies that risk assets are about to move into an important tactical top in the next 5 to 10 trading sessions,” the analysts wrote.
The VIX, as the Chicago Board Options Exchange Volatility Index is know, measures the cost of protecting against declines in the S&P 500. The gauge rose 2 percent yesterday after falling for three consecutive days.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. UBS is ranked as the top bank for equity technical analysis and charting according to a 2010 Thomson Extel survey.
To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.
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