UBS is in stark disagreement with Jeff Saut at Raymond James, who wrote earlier this week, that we are in the middle range of a selling stampede that could last another week or longer. UBS is telling their clients that the markets are near their bottom:
“As highlighted in our Technical Alert on Friday, last week’s sell-off had all the signs of a classic capitulation. We saw a big jump in risk aversion with a spike in the VIX index, the highest volume in SPY since the March lows, a strongly increasing put/call ratio, and a spike in the NYSE TRIN/ARMS index.
Have we seen the lows? We don’t think so, from a cyclical perspective it is too early to call a bottom, and from a price perspective most charts still have some room to test their next relevant support levels.”
Based on this, they think it is time to start getting back in to the water. The risk/reward now favors buying on the dips as opposed to selling the rallies.
“According to our cyclical roadmap, we still favor a 4-month cycle low in late February; so over the next 3 weeks we see equities as still vulnerable for more down tests. However, with last week’s capitulation we think we have seen 90% of the downside, so the next 2 to 3 weeks could be more of a bottoming process (including a bounce this week), instead of expecting more of the same aggressive bear attacks from last week. From a price perspective we stick to our recent call and see most markets pulling back to their 200-day moving averages. Our SPX target is unchanged at 1040 to 1020, the Nasdaq Composite should see a low at around 2050. Given last week’s capitulation we are changing our tactical bias and recommend aggressive traders to start buying/ accumulating into further weakness to position for a significant rally into March/April.”
Source: UBS/TheBack9
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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