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UBS Presents Technical Doom and Nominal Boom In Two Charts

Tyler Durden's picture




 

In their 2012 Technical Analysis outlook, UBS, the Swiss bank that seems the most desirous of a helping hand from any and every printing-press manufacturer in the world, sees both a major cyclical bottom forming in 2012 based on a confluence of cycles as well as a very timely long-term sell-signal based on one of its proprietary models. We assume that the downside (based on their composite sell signal which triggered last May and has a 10-13 month lag to cycle lows) they see in equity market, as the Juglar and Kitchin cycles trough together, drives Central Banks to finally flip the switch and save the world (in nominal terms) around mid-year. In the meantime, we will see QE3-based disconnects ebb and flow day after day as volumes wax and wane from panic (buying or selling) to vacuous - where rallies should be faded and not chased. Combine these two charts with their views on cycle lows in election years, years ending with a '2', and decennial cycles and it appears technically we are all set for a tumultuous year.

On their TT-New Composite Indicator (above) sell-signal, UBS notes:

After generating a sell signal in overbought territory this indicator usually moves down the full range into oversold territory before generating a new buy signal and marking the beginning of the next cyclical bull market. In this case we are talking here about a monthly indicator, which means moving down the full indicator range usually takes a few months. The minimum downside to expect is a 10 to 13 months decline from the top.

 

Last May we got our sell signal, which is just another confirmation that the October low last year would be way too early from just a time perspective. The more important finding is that with a 10 to 13 month correction pattern we would land exactly in summer 2012, which is the low projection we are getting from our cycle work.

 

Another key message is that even if we should see any kind of temporary positive surprise in the S&P-500 into later Q1, we would see this as a potential false break or bull trap and therefore wouldn’t chase the market!!


And somewhat cataclysmically, on the troughing of Juglar, Kitchin, and Decennial cycles:

The question is of course how much of a correction we see on the way into this low? The problem is that in H1 2012 both the Juglar and the Kitchin cycle (chart above) are moving down simultaneously and translated it means that particularly in these timeframes we have a negative surprise in risk assets setup developing.

 

The last two examples where both cycles went down hand-in-hand were 2008 and 2001. In 2004 and into 2005, the Kitchin cycle was also negative but given the bullish background of the Juglar cycle, the market effectively just went sideways before starting the next and final bull wave into 2007/2008, where both cycles moved into their bust phase.

 

UBS Conclusion:

We expect this year another bearish spike in sentiment but on the back of this it is maybe more realistic to expect only a first and limited bull cycle into 2013 before we could see another cyclical bear to complete the whole secular bear around 2014, which would finally mean that this market is going nowhere in the next 2 to 3 years.

 

The only chance for this picture to change is, in our view, with a macro environment where we get an external shock on the inflation side, so that in the next 2 years inflation gets out of control, where in nominal terms equities would do quite well but in real terms we nonetheless would all lose money.

 

Source: UBS

 

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Thu, 01/05/2012 - 16:49 | 2036748 HedgeAccordingly
HedgeAccordingly's picture

The headless market.. and the Headless woman - http://hedge.ly/gFWVSm

Thu, 01/05/2012 - 18:24 | 2037228 greased up deaf guy
greased up deaf guy's picture

"The only chance for this picture to change is, in our view, with a macro environment where we get an external shock on the inflation side, so that in the next 2 years inflation gets out of control, where in nominal terms equities would do quite well but in real terms we nonetheless would all lose money."

we would all lose money? speak for yourself, bro.

Thu, 01/05/2012 - 16:51 | 2036764 GeneMarchbanks
GeneMarchbanks's picture

(nominal) terms, we're going to be OK.

Thu, 01/05/2012 - 16:56 | 2036786 blu
blu's picture

But does their model include a Kardashian coefficient? Cuz the "year ending in 2" thing is strictly olde school.

Thu, 01/05/2012 - 20:54 | 2037628 bahaar
bahaar's picture

Nope.  And does not take into account the effect of Mars when it's in retrograde.

Fri, 01/06/2012 - 03:32 | 2038318 StychoKiller
StychoKiller's picture

Methinks a lot of folks are relying on chicken bone tosses or astrological charts to make sense of fraud and random events -- good luck with that!

Thu, 01/05/2012 - 16:57 | 2036792 1835jackson
1835jackson's picture

Shock= war...duh

Thu, 01/05/2012 - 17:06 | 2036834 gjp
gjp's picture

And the US market grinds ever higher led by household names like HD, SBUX, WFM, AAPL etc.  Nothing can stop the American consumer and their granite countertops, $5 coffees, overpriced groceries and electronic toys.  Who cares if they can afford it - Ben's got helicopters for that!

Thu, 01/05/2012 - 17:06 | 2036835 847328_3527
847328_3527's picture

Technically many banks are insolvent but rose 20% in the last few weeks....technicalities don't matter as much as they used to.

Thu, 01/05/2012 - 17:09 | 2036847 vast-dom
vast-dom's picture

I tell you at this rate I can generate any kind of chart with any kind of interpretation in any direction for either bulls or bears and rationilize with all kinds of calculus and accounting tricks all while IGNORING FUNDUHMENTALS just like UBS and most everyone else seems to do.

Thu, 01/05/2012 - 17:08 | 2036849 slaughterer
slaughterer's picture

In this report UBS pulls out technical indicators that neither a Haitian voodoo doctor, nor an MIT rocket scientist could understand.

Thu, 01/05/2012 - 17:10 | 2036859 vast-dom
vast-dom's picture

Yes but any astrologer and palm reader would have no trouble deciphering into your future.

Thu, 01/05/2012 - 17:29 | 2036982 cheeseheader
cheeseheader's picture

In my case, it would be the blind leading the blind...and deef and dumb.

Thu, 01/05/2012 - 17:54 | 2037112 onebir
onebir's picture

Kuznets & Kondratieff would do fine tho ;-)

Fri, 01/06/2012 - 09:08 | 2038686 flattrader
flattrader's picture

No like that 3 cycles are bottoming nearly simultaneously.

Thu, 01/05/2012 - 17:13 | 2036880 NumNutt
NumNutt's picture

"but in real terms we nonetheless would all lose money."  The last sentence says it all, quick everyone to the golden liferaft!!!

Thu, 01/05/2012 - 17:14 | 2036892 slewie the pi-rat
slewie the pi-rat's picture

SELL!!!

Thu, 01/05/2012 - 17:16 | 2036912 slaughterer
slaughterer's picture

It's JUGULAR and KITCHEN-SINK CYCLE!  GET YOUR SPELLING CORRECT UBS!

Thu, 01/05/2012 - 17:22 | 2036940 J 457
J 457's picture

Up until Feb/March, maybe breaking SPX 1,290, then down hard in March/April and thru the summer.  More than one is predicitng this outcome. 

Thu, 01/05/2012 - 21:34 | 2037701 onarga74
onarga74's picture

I'll bet you a quarter it starts tomorrow and the latest would be this coming Monday.  I would not be long anything until this coming crevasse is behind us

Thu, 01/05/2012 - 17:25 | 2036957 I should be working
I should be working's picture

Proprietary BS - wake me when the next cyclical bull starts. Btw - If you can't sit on a paper loss for two years you have no business buying stocks. The market can always go down in the short to medium term, no one can know that for certain.

Thu, 01/05/2012 - 17:47 | 2037074 economists_do_i...
economists_do_it_with_models's picture

Dow -2 today, so hardly a crazy up day.  But DNDN +40%, AAMRQ +40%, BAC +8%, etc.  Ancestory.com +20%. (?) What's their sales pitch: "I see dead people." (?)  SIRI +10% -- didn't MP3 players + Pandora on smartphones kinda make them a bit obsolete?  Just saying.  I find the degree of speculation in this rally kinda interesting...

Thu, 01/05/2012 - 17:50 | 2037087 Scalaris
Scalaris's picture

What was the level of central monetary intervention during previous secular bear markets, and how does it compare with any expected quantitative easing inflows into the economy? Assuming that there was a level of organic growth following a post-recessional recuperation in the past.

Considering that a controlled delevering isn't a valid choice at this point, the only outcome will be that of an inflationary expansion based on artificial liquidity, and further currency devaluation.

Or will the outcome be that of a stagflationary period, of inflation due to the expansion of monetary base and stagnating growth, due to the diminished consumer purchasing power, which will also force a general corporate downscaling operation environment and therefore declined profit generation?

An inevitable and protracted period of economic stagnation is required in order to revert to a more fair market valuation, since central monetary intervention by the refusing controlling market interests yields no more results, and a broader military conflict be the next "rational" step, in order to attain procurement of assets and thereby consolidate shifting wealth.

Asset stripping through either military conflicts or continuous inflation will result to the demotion of various populational social groups to a state of reduced social needs, while at the same time providing a premise for a compulsory restructuring of manufacturing bases powered by the newly created labour pool, controlled by the prevailing interests.

Fri, 01/06/2012 - 03:35 | 2038321 StychoKiller
StychoKiller's picture

You're overanalyzing the presented astrology here -- it's plain as day, what with Uranus being in Cancer -- or is that the other way round? :>D

Thu, 01/05/2012 - 17:54 | 2037118 STP
STP's picture

Looking at the One Year DJIA on a Technical Analysis basis, I see a huge upward pennant forming.  The peak looks like it will be about March 2012.  Based on that, I'm calling for a heavy drop in the DJIA by that date.

Thu, 01/05/2012 - 18:29 | 2037251 icm63
icm63's picture

Work with cycles here , to apply this in your investing

http://www.readtheticker.com/Pages/IndLibrary.aspx?65tf=108_jim-hurst-method

Cheers 

Fri, 01/06/2012 - 02:52 | 2038280 GMadScientist
GMadScientist's picture

The inner vibration of my root chakra is coming into alignment with Virgo.

Based on that I'm calling S&P 900 before the ayanamsa reaches 24.5

 

Fri, 01/06/2012 - 03:37 | 2038323 StychoKiller
StychoKiller's picture

No wonder you call yerself a mad scientist!

What's the ticker symbol for "ayanamsa?"  :>D

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