Technicals | Dec 01 2011
By Rudi Filapek-Vandyck
A coordinated global liquidity support action by six major central banks plus a sooner-than-anticipated bank reserve ratio loosening by Chinese authorities have provided risk assets with a Big Boost overnight, but to the credit of technical market analysts at UBS, they already concluded before all this was happening that the S&P500 index in the US had put in its low point for the present mini-cycle. As a result, the chartists predict the S&P500 is on its way to test 1220 and after that the focus should move to 1292, the late October high.
According to the chartists' analysis, there are two critical levels investors need to watch closely. The first one is located at 1158, the second at 1074 (the October 4th low). A sustained break below each of these price levels would be very negative and likely force UBS chartists to review their scenarios for US equities. For now, however, their preferred scenario is for three to four weeks of upside -hey, that's a Xmas rally!?- to be followed by renewed weakness in January.
In support of their scenario for the S&P500, the chartists have also spotted a Buy signal for Emerging Markets in Asia. Further support is being provided by "extreme overbought signals" earlier this month as well as via the traditional season pattern which usually sees equities trending higher as the calendar year comes to an end.
In summary: UBS chartists believe US equities have just begun another leg higher, but one that is unlikely to last beyond the next few weeks. On their analysis, the outlook remains positive as long as support at 1158 holds, while 1220 should provide solid resistance.
Finally, and this might surprise a few readers, UBS chartists also believe gold has put in a temporary low at US$1667/oz and should now move higher in price over the weeks ahead. As is the case for for equities, UBS chartists see an end to the short-term trend in January. The latter view raises the obvious question: what happened to gold's role as the safe haven alternative when things get rough for equities and industrial commodities?
In an update that catches last night's price action, technical market analysts at Barclays in London report that even with these big moves in risk assets, the technical picture remains neutral at best and thus more upside needs to be achieved to change the overall picture from a technical perspective.
Eye-catching, to say the least, is the Barclays' analysts outlook for industrial metals copper and aluminium: "We look to fade the rally in copper against the 8280 range highs and look for a move back below 7000/7100. We expect selling interest near the 2225 area in aluminum and look for a move lower toward the 1825/1860 area".
Technical limitations
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