Don't chase the S&P 500, UBS technical analysts say

Technical analysts at UBS on Wednesday told clients they should not "chase" the US S&P 500 equity index or Treasury notes higher, although the US might be set to strengthen.

The S&P 500 was now on target to reach the upper end of their 2,000/2,050-point target range, analysts Michael Riesner and Marc Muller said in a research note sent to clients.

That, they said, should be followed by a new leg lower in that equity benchmark.

"Together with the SPX heading into our late March top projection, we continue to see the US market on the way into our suggested late Q1/early Q2 tactical top, as the trigger for a significant new down cycle into early/deeper summer," they said.

A break below the 1,969-point mark would confirm their suggested late first quarter top was in place, Riesner and Muller said.

Cyclical themes, and commodity-related ones in particular, were most exposed to the risk of renewed falls.

"Our daily trend indicators are reaching overbought extremes and in our fast momentum work we have initial non-confirmations forming, which is tactically toppish. Together with the SPX heading into our late March top projection, we continue to see the US market on the way into our suggested late Q1/early Q2 tactical top, as the trigger for a significant new down cycle into early/deeper summer," the analysts said.

Their expectation was for the S&P 500 to re-test key technical support around 1,800-1,820 towards the June/July time window.

"February 11th's low was NOT the low of this bear market since we haven’t seen the classic bullish divergences in our breadth work nor have we seen any real capitulation via panic selling and/or spikes in volatility."

A near-term rebound in US T-bonds was in sight, but there was a risk of a short but sharp sell-off heading into the second quarter. On the other hand, the broker expected the US dollar index to see renewed strength and a major breakout attempt to be made into deeper in the second quarter.