By Tyler Durden at ZeroHedge
In January and in early February UBS' technical analysts said that while they do not believe in a 2008 event, 2016 should be a highly volatile and a trading oriented year for equities... and so far it has. But now Michael Riesner and Marc Muller see a high likelihood to move into our suggested early Q2 cycle top this week.
With last week’s higher low at 2033, we have a new pivotal support in place in the SPX, which makes 2033 to a tactical key support.
On the upside the market has still strong resistance at 2080/2100. A re-break below last week’s breakout level at 2075 would be initially negative. A break of 2033 would imply that a more important tactical top is in place with support/initial targets at 2022, 1980 and 1950.
Again, from a cyclical aspect we think that a potential April top will be important and the basis for a significant correction into initially early May before starting a rebound, which should hit a lower high, and ultimately down into July, where we expect the next bigger tactical buying opportunity.
We reiterate our last week’s call and would not chase the new breakout in the SPX!
Deteriorating Breadth and Toppish Seasonality
Particularly in February and into mid-March the breadth of the rebound/bear market rally in global equities was quite strong, which is not a big surprise given that several markets were on multi-year oversold levels, where normally we see significant and longer lasting mean reversion rallies, which was our call in early February.
However, since late March, the momentum in global equities has been clearly deteriorating. In Europe and Japan we have seen initial and significant pullbacks into early April, whereas the US markets continued to outperform. Also in the US, the selectivity has been increasing over the recent 3 to 4 weeks. The new reaction high in the SPX has not been confirmed by transport, which creates a classic divergence in the Dow Theory.
Since late March, the number of SPX stocks trading above their 20-day moving average has been deteriorating...
And even the new reaction high in the Russell-2000 last week (which is actually good news) has produced a smallerdivergence in the new 52-week highs in the broader market, which is tactically toppish.
Together with a divergence forming in the VIX index, and with the seasonality getting toppish we continue to see the risk of a significant and longer lasting tactical correction leg in the US and global equities into summer.
After the strong rebound in global equities, the MSCI World has broken its 2015 downtrend and its 200-day moving average largely on the back of the US outperformance.
With forming a divergence in our daily trend work, we see the risk that this breakout finally represents a bull trap, where a re-break below 396 would be bearish.