Technical Review of Stocks S&P 100 Index – OEX (Mega-Cap Stocks) UBS Wealth Management Research 8 July 2015 For information about this report, see Description and Methodology in the Appendix This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures begin on page 18. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Transcript
Technical Review of Stocks
S&P 100 Index – OEX (Mega-Cap Stocks)
UBS Wealth Management Research
8 July 2015
For information about this report, see Description and Methodology in the Appendix
This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures begin on page 18. UBS does and seeks todo business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affectthe objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
S&P 100 Index (Mega-Cap stocks) – Recent correction is approaching key initial support • The S&P 500 Index (SPX) is a proxy for the US large cap
US equities market. Similarly, the S&P 100 Index (OEX) or the top 100 market cap weighted names is a proxy for US mega caps. The value of the OEX Index ($11.91 trillion) is 63% of the overall SPX Index ($19.13 trillion). OEX continues to be heavily weighted to the top five sectors including: Technology (24%), Healthcare (16.5%), Financials (15.1%), Consumer Discretionary (10.9%) and Consumer Staples (10.6%).
• Despite the 2-plus year underperformance of OEX in relationship to SPX the 4th quarter 2012 breakout above 666 reverses its 2000 primary downtrend (monthly chart) and signals the start of a potential outperformance cycle. Two uptrend channels (weekly charts) have developed in the past few years – 2009 uptrend channel between 736-896 (160-points base) and 2011 uptrend channel between 891.5-981.5 (90-points base). Four positive outside months (4/14, 8/14, 2/15 and 4/15) also hint of a rotation into this market.
• Targets: A downtrend breakout at 666 coupled with a 5-plus year channel breakout above 786 on Oct/Nov 2013 render next upside targets to 937-938 (near-term) and above this to 951. The 2011 uptrend channel breakout (above 901) suggests 981.5-983 (medium term). The breakout above 666 (2012) can extend rally to 1,083, longer term.
• Risks: The correction over the past month may be approaching an inflection point as evident by a key test of initial support at 891.5-896 or the Mar/Apr 2015 lows, extension of the top of the 2009 uptrend channel and the bottom of the 2011 uptrend channel. Secondary support is at 870-880 (Dec 2014/Jan/Feb 2015 lows). The May/Jun 2014 breakout (846), the 30-mo ma (830) and the Oct '14 low (814) are intermediate term support.
Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
Relative Strength breakout in early 2012 confirms a Fan reversal?
Apple Inc. (AAPL) – 4-month consolidation within the context of a longer-term uptrend • AAPL continues to be an influential name within US
equity markets as this Technology stock accounts for 3.79% of the SPX Index and 6.09% of the OEX Index from a market capitalization perspective.
• AAPL suffered a dramatic setback losing 45% of its value from its Sep 2012 high (100.72) to its Apr 2013 low (55.01). However, an extreme oversold condition coupled with the ability of this stock to find key support near its 50% retracement (55.95) from the 2009-2012 rally prevented a deeper bear decline to the 61.8% retracement (45.38). An oversold condition and a subsequent breakout in Aug 2013 above 66 triggered a recovery.
• This recovery has gained traction soon after exceeding resistance near the low-to-mid 80s corresponding to the extension of the prior 2009 uptrend as well as the Oct-Nov 2012 breakdown. A subsequent breakout above the 61.8% retracement (83.26) from 2012-2013 decline further reaffirmed a sustainable recovery. This rally soon accelerated after surging above its 2009 uptrend at 85-86.The late 2014 breakout above 100.72 extended the rally to its medium term target of 133-134.
• Although AAPL can achieve our target of 146-147.5 a negative outside week during 2/27/15 coupled with a near-term overbought condition has led to a consolidation between 118-121 and 133.5-135.5. This technical base helps to alleviate an overbought condition and can set the stage for the next rally. Secondary support is visible at 112.5-115.31 (Jan '15 large gap up). The prior Oct/Nov 2014 breakout, Jan 2015 lows and the bottom of the 2013 channel at 101-106.4 offer intermediate term support. Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
A breakout above Sep 2012 highs (100.72) renders +45.71 points or an upside target towards 146.43.
61.8 % retracement = 83.26
A consolidation between 118-121 and 133.5-135.5 can set the stage for the next rally towards 146-147.5
Relative strength breakout (May '14) suggests a retest of 2012 highs.
100.72 (Sep 2012)
55.01 (Apr 2013)
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Exxon Mobil (XOM) – Rising Wedge and Head/Shoulders top breakdowns are negative • WTI Crude has fallen 61% from its Jun '14 high
(107.73) to its recent Mar '15 low (42.03). The ability to maintain key support at 37.8-42.66 prompted a technical oversold rally to 62.5 (May '15) producing gains of 48.89% in 35-days. Unfortunately this rally was not sustainable and another sharp pullback is now testing key support at the 61.8-76.4% retracement (49.88/46.88) from Mar-May '15 rally. The ability to retain this support zone confirms a higher low pattern and set the stage for an extensive U-type recovery. Nonetheless, technical damages have been incurred during the recent downturn as popular energy indexes including XOI and OSX indexes will likely require extensive technical bases to substantiate major bottoms.
• Negative outside weeks on 6/27/14 and on 8/1/14 first warned of a technical weakness. Since then XOM has fallen 22% in the past year. In the process this important Energy name has violated two crucial support zones including the 2008/2010 uptrends (low-to-mid 90s) and pivotal neckline support (84.79). The above technical actions confirm a rising wedge formation and a 2-plus year head/shoulders top pattern. Since the height of the pattern is nearly 20-points this would imply further downside risks, over time. Key initial support is at 80.35 (50% retracement from 2010-2014 rally) and below this to 74.59-77.13 (Jun '12 lows and 61.8% retracement). Under extreme selling XOM can retest its 2011 lows (67.03-67.93), 76.4% retracement (67.46) and the head/shoulders breakdown target (54.82).
• Key initial resistance is at 85-87.5 coinciding with the 10-wk and 30-wk moving averages, neckline support, Aug '14 downtrend. A breakout here signals a recovery to key secondary resistance at 90-9.5 or the Feb/May '15 highs and prior breakdowns Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
Height = 40.18
96.12
55.94 Multi-year base breakout at 95 appears to have been a false breakout/bull trap. A 5-year rising wedge breakdown and a 2--plus year head/shoulders breakdown warns of a major top.
Height = 19.97
Uptrend channel breakdowns below the low-to-mid-90s and below 84.79 warns of a correction to 74.59-80.35.
Weak relative strength continues to suggest underperformance against SPX Index.
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Microsoft Corp (MSFT) – Recent 1-year consolidation sets the stage for another breakout • MFST is another important technology name. It is the
third largest name in SPX Index accounting for 1.88% of the total market cap weighting and 3.02% of the OEX Index. This "old tech" name has attracted both income and value investors in recent years. Although MSFT has been trading in line with the broad market (SPX) and its S&P Technology sector since Nov/Dec 2014, it still retains its late-2013 pivotal Head/ Shoulders bottom breakout at 36-37. This indicates higher prices after the consolidation.
• A large 14-year accumulation pattern breakout at 36-37 in late-2013 still suggests upside target to 59-60, over time based on the height of the Head/Shoulders bottom of nearly 22 points. Interestingly, this target also corresponds to its Jan '00 record high (59.97). The longer-term relative strength chart has improved over the past year as evident by a technical breakout in Jul'14 above its 2000 downtrend substantiating a recovery back to its prior 2000 highs.
• On a near to intermediate term basis, a large gap down on 1/27/15 (at 43.20-46.24) has led to a 1-year consolidation between 40 and 50. Recent large gap up during Apr '15 (43.61-45.66) and the recent closing of the gap up during late Jun/Jul '15 may signal a retest of the 2014/2015 highs at 49.54-50.05. A breakout above 50.05 suggests a 10-point rally to an intermediate term target near 60.
• On the downside, failure to maintain key near term support at 40.12-40.23 (Feb/Apr 2015 lows) confirms a top and opens the door for a deeper correction to its pivotallate-2013 breakout and 50-61.8% retracement from 2012-2014 at 35.36-38.16. A convincing breech of this intermediate term support negates a multi-year base breakout and hints of a decline towards 31-33 or the 2009 uptrend and 76.4% retracement. Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
Head and Shoulders Bottom breakout above 37 suggests 59-60.
Height = 22 points
A 2-plus year uptrend channel breakdown (44-50.5) and a 1-year technical base (40-50).
Height = 6-6.5
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Johnson & Johnson (JNJ) – Achieved upside technical targets prompting a consolidation • The S&P Healthcare sector has been one of the better
relative outperformers over the past few years. This trend is likely to continue into 2015/2016. Although we expect higher prices in this sector, the current risk/reward profiles is no longer as attractive as in the past. We urge stock selectivity in this sector as many Healthcare stocks may need to consolidate their gains over the near-to-medium term.
• In the case of JNJ, a major technical breakout during late 2012 to early 2013 signals the start of an outperformance cycle. This large 14-year Ascending Triangle, Uptrend Channel, and/or Head and Shoulders Bottom breakout above 73-77.5 have quickly achieved our technical upside technical targets of 99.25-104. In addition, a breakout above the mid-90s during Mar '14 quickly fulfilled its target of 109-110.
• Although JNJ can still trend higher over the longer-term a Head/Shoulders Top in the past year warns of a matured rally that is need of a consolidation. Key initial support moves up to 95.10-95.82 corresponding to the bottom of its 2-uptrend channel, the Oct 2014 reaction low and the 30-mo ma. Violation here confirms a top and opens the door for a deeper correction towards 91.24 or the 38.2% retracement from 2012-2014 rally and below this to 85.5-86.6 coinciding with the Oct '13/Feb '14 lows and the 50% retracement from 2012-2014 rally. The May '13 lows and the 61.8% retracement at 79-82 additional key support. 70-73 or the pivotal 2013 breakout remains major support.
• Initial resistance is evident near 102.23-104.48 and then 106.74. The Nov '14 all time high at 109.49 remains intermediate term resistance. A breakout here can lead to the next major rally to 123-125.
Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
Ascending Triangle, Uptrend Channel and/or Head and Shoulders Bottom breakout(s) at 73-77.5 suggest upside targets to 99.25-104.
Height = 26.5
Height = 14.39
1-year channel breakout at 97.5 +10-10.5 to 107.5-108
Head and shoulders top. Key neckline support is 95.
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General Electric Co. (GE) – Consolidation phase can lead to a sustainable recovery • GE is a key member of the S&P 500 Industrials sector
comprising slightly more than 10% of its total market capitalization. It is also the fifth largest name in OEX Index accounting for 2.24% of the overall index. This important blue chip name is a bellwether as it sensitive to US business/economic cycles.
• From a technical perspective, a number of conflicting signs paint a mixed Neutral near-term/medium term technical outlook. However, the longer-term picture is one of a constructive recovery. For instance, the late 2013 breakout near 26.5 reverses a major 15-year downtrend and signals a potential recovery back to the Oct 2007 highs (42.08). However, failure to convincingly clear above its 61.8% retracement (28.19) from 2000-2009 decline and the Dec 2013 highs (28.09) as well as a negative divergence between relative strength (SPX) and price suggest further technical work is needed to sustain a rally.
• Nonetheless, as long as GE maintains above its 2009 uptrend channel and its recent 2014 lows (24-25) higher prices are likely, over time. A breakout above 28.09-28.68 renders upside technical targets to 33-34.25 (medium term), 38.5-39 (intermediate) or the 2006/2008 highs and then to 42.08 (longer-term).
• On the other hand, repeated failures to convincingly surpass the extension of the top of its 2011 uptrend channel at 28-29 warns of a retest of initial support at 26 or the 30-week moving average. Violation here opens the door for a decline to 23.41-23.69 or the 2014-2015 lows. A breakdown here confirms a near-term top and warns of downside risks to 22.87 or the 23.6%retracement from 2009-2014 rally and below this to 19.59-21.11 or the 38.2% retracement, Apr '13 lows and the downside target based on the 7-points uptrend channel breakdown. Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
2000 downtrend breakout signals the start of a longer term recovery possibly to retest its Oct 2007 highs at 42.15.
Breakout above 32.5 40.5
Breakdown below 23.5 15.5 Height = 7
Height = 4
6-year uptrend channel remains intact between 25 +/- 1 and 33 +/- 1
Relative strength is not yet confirming recent 2014 technical breakout.
Height = 7
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• The long term technical trend (5-plus Year technical view) is bullish. This technical view is predicated on GOOGL staying above three key support levels including (1) 30-month moving average (523); (2) 2014/205 lows (491-511) and (3) 7-year ascending triangle breakout as well as the 2008 uptrend (374-389). The 121% rally from June 2012 to February 2014 has achieved a number of technical targets prompting the current 1-plus year consolidation.
• The intermediate term trend (1-4 Year technical view) has now transitioned into a well established 1-plus year trading range as defined by 477 on the downside and 592 on the upside. We suspect a few more 10-week and 30-week moving average crossovers (technical buy/sell signals) may occur over the next 1-2 years before the start of the next sustainable major rally.
• The shorter term trend (1-year technical view) is Neutral as the current near-term risk/reward profile is even. Since GOOGL is currently trading near the mid-point (542) of its trading range (477 and 592) it may become frustrating for investors. However, disciplined and opportunistic traders may benefit from this trading range environment.
Google Inc. Technical Analysis Overview
Trend Outlook Support Resistance
5-plus Year Technical View Primary Uptrend intact/ New all-time highs likely but after a consolidation.
1st 523 1st 593-615
2nd 486-511/389 2nd 624
3rd 374/334 3rd 700-717
1-4 Year Technical View Flat Price Trend and Flat moving averages suggest a continued sideways medium term trend.
1st 511-529 1st 585-595
2nd
3rd
477-499
427-447/370-407
2nd
3rd
605-615
624/710-717
1-year Technical View
1-plus year downtrend channel. Near-term risk-reward profile is Neutral as it is trading at the midpoint of its range.
1st 529-539 1st 558-566
2nd 511-518.5 2nd 582-595/605-615
3rd 477-496/447-467 3rd 624/700-717
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Google Inc. (GOOGL) – Long Term Technical View (5 years) • The 20% correction over the past year has weakened
the near-to-intermediate term technical outlook of GOOGL. This is evident by the 1-year relative underperformance against its Technology peers as well as against the SPX Index. Nonetheless, we are encouraged to find GOOGL maintaining above its 30-mo moving average (ma) at 523.
• A convincing violation of the 30-mo ma may open the door for a retest of the recent 2014/2015 lows (511/491) as well as the bottom of its 1-plus year downtrend channel (486). It is interesting to note that since 2009/2010, GOOGL has consistently found key support near its respective 30-mo ma (i.e., 2010, 2011 and 2012) and around the bottom of its 2009 uptrend (389). However, as the trend steepened soon after the late-2012 channel breakout at 334 GOOGL began to track its 10-mo ma. This ended abruptly in 2014 as GOOGL violated moving average setting into motion the current 1-year downtrend channel between 486 and 593.
• This trading range is necessary to alleviate an overbought condition brought upon by the 121% rally from 2012-2014. Watch the 10-mo ma (546) and 30-mo ma (523) as they have converged sharply. This action hints of an impending inflection. A successful test of the 10-mo ma bouncing off of its 30-mo ma coupled with a breakout above the top of its 1-year downtrend channel (593) can ignite the next major rally towards 624, medium-term and above this supply to 700-717, longer-term.
• On the other hand, the crossing of the 10-mo ma below its 30-mo ma accompanied by a violation of its downtrend channel at 486 warn of a deeper correction to its 2008 uptrend (388) and possibly to its 2012 triangle breakouts at 374/334, respectively. Source: Thomson Reuters, UBS CIO WMR as of 8 Jul 2015.
Ascending Triangle Breakout
Height = 83
Height = 250.21
373.98
334
Height = 124
123.77
Bouncing off the bottom of its Relative Strength uptrend channel?
615
511 491
593
486
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Google Inc. (GOOGL) – Intermediate Technical View (1-4 year) • The strong rally (120.5%) from Jun '12 low to the Feb
'14 high and the ensuing 20% correction over the past year closely resembles the Nov '08 to Jan '10 rally (153.5%) and the ensuing 31% correction from Jan '10 to Jul '10. Looking back at the 2010-2012 time frame, GOOGL traded within a wide range between 217 and 335. This extensive consolidation frustrated many traders and investors. However, this action alleviated an overbought condition setting the stage for the 2012-2014 rally. Although we are not necessarily calling for a repeat of the prior cycle the market action over the past year closely resembles the past. Does this then imply GOOGL will also be confined to a trading range over the next 1-2 years.
• It is uncanny that during the 2010-2012 time frame GOOGL witnessed 3 weekly golden cross buy signals and 3 death cross sell signals as represented by crossings of the 10-wk and 30-wk moving averages. Today, it appears there are 2 confirmed death cross sell signals and 2 golden cross buy signals. Do we need another 1-2 more buy/sell signals before the next major rally (i.e., 2008-2010 and 2012-2014)?
• Risks: Initial support is 511-529 or the Apr/May '14 and Apr '15 lows. Secondary support is at 477-499 or the bottom of the 1-year downtrend channel, 23.6% retracement from 2008-2014 rally, and the 38.2% retracement from 2012-2014 rally. Below this opens the door for a deeper correction towards 427-447 (50% and 38.2% retracements) and then to 370-407 (61.8%/50% retracements and 2008 uptrend).
• Upside: Initial resistance is 585-595 or the top of its 1-year downtrend channel and then to 605-615 or the Feb/Jul/Sep '14 highs. A breakout here renders upside targets to 624 (7-year ascending triangle breakout target) and then to 710-717 (longer-term). Source: Thomson Reuters, UBS CIO WMR as of 8 July 2015.
Does the current market action over the past year or so hints of a repeat of the 2010-2012 trading range market?
Slipping below its prior relative strength breakout during the 4th qtr. 2013 reinforce a trading range trend.
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Google Inc. (GOOGL) – Short term Technical View (1-year) • The violation of the 2012 uptrend channel during Oct
'14 is a near-term technically significant development as this reaffirms an extensive sideways trading range environment. Since then GOOGL has transitioned into a well defined 1-year downtrend channel as defined by top of its trading range or key near-term resistance at 595 and the bottom of its range or key near-term support at 477.
• Since GOOGL is currently trading around 545 or near the midpoint of its 1-plus year trading range the short-term risk/reward profile is Neutral based on upside to 595 and downside risks to 477. On near-term basis, the key trading support is 529-539 corresponding to the Feb/Apr/May/Jun '15 lows. Secondary support is also available along 511-518.5 or the Feb '15 gap up, the Apr/May/Oct '14 lows and the 40% retracement from Oct '13 to Feb '14 rally. Medium term support remains at 477-496 coinciding with the Jan '15 reaction lows, the 61.8% retracement from the 2013-2014 rally, 38.2% retracement from the 2012-2014 rally, the top of the Oct 2013 gap up and the extension of the bottom of the 2013 downtrend channel. Violation of key support here signals a deeper correction to 447-467 or the 50% retracement from 2012-2014 rally and the bottom of the Oct 2013 gap up. 407-422 or the 61.8% retracement from 2012-2014 rally and the Oct 2013 reaction low is important support.
• On the upside, initial trading resistance is evident near the recent Jun '15 highs (558-566). Secondary resistance lies along the Mar/Apr '15 highs and the top of the Feb '14 downtrend channel at 582-595. The ability to clear above this supply allows for a retest of the 2014 record high of 605-615.04. Breakout here renders upside targets to new highs (624) and then to 700-717, longer-term. Source: Thomson Reuters, UBS CIO WMR as of 8 Jul 2015.
Currently trading at the midpoint of a 1-plus year downtrend channel between 477 and 595 (118-point range).
Approaching a key test of the Relative Strength (vs SPX) downtrend line from Mar '14.
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Contact Information
UBS Financial Services Wealth Management Research NY, NY 10019 www.ubs.com
Peter Lee UBS Financial Services Inc. [email protected] 212-713-8888 Ext 01
UBS CIO WM Research 8 July 2015 12
Appendix % +or- Moving Avg (DMA) The percentage above or below the moving average (see Moving Average) is used to help measure an overbought
or oversold condition and is a component of risk management. It is calculated by taking the difference between the group price and its 30-week moving average (see below), and then dividing by the 30-week moving average times 100.
30-Week Moving Average Also known as the 30-week line or 150-day line), this is one of the most popular and respected moving average indicators (see Moving Average) in technical circles. It is calculated by totaling the latest 30 weekly (usually Friday closing) prices and dividing by 30 to arrive at the average. Each week, the most recent week’s figure is added to the total, and the price level from 30 weeks ago is subtracted – hence the term “moving.” Please note that a breakout above or breakdown below this line does not, in and of itself, constitute a buy or sell signal.
Adjusted Relative Strength (ARS) Number gives a 50% weighting to the 1-month relative strength, 30% to the 3-month, and 20% to the 6-month numbers to arrive at a single weighted number.
Base A chart pattern marking a period of accumulation following a downtrend. The larger the base, the greater the upside potential following its completion. A base can take many forms.
Beta A measure of volatility of a security as it relates to the market as a whole. Beta is often calculated using regression analysis. A beta is basically the tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means the security will be less volatile than the market. A beta of greater than 1 implies that the security’s price will be more volatile than the market.
Blow off stage to a major rally This is often the last stage of a speculative bubble to a major rally. The blow off phase tends to be steep, but short-lived that often affords little opportunity for investors/traders to exit their positions. As price of a security or an asset advanced to an unsustainable level via a parabolic uptrend this give rise to the bursting of the speculative bubble resulting a quick and dramatic decline as investors/traders try to exit the market/security at the same time.
Breakdown A technical term indicating a downside resolution of a chart pattern. Its significance is determined by the same factors governing a breakout.
Breakout A technical term indicating an upside resolution of a chart pattern. Breakouts can take many forms, and their degree of importance is determined by the significance of the chart pattern which preceded it.
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Appendix
A technical analysis term used to describe potential areas of support (price stops declining) or resistance (price stops rising) on the charts. After a strong rally or decline there is a tendency for a security to retrace a certain portion of its prior move (up or down). Fibonacci retracements use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before continuing in the original direction. These levels are computed by taking the two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.
Fibonacci Retracement Level
A trend line connecting successively lower peaks for a stock (or market). Its technical significance is determined by the same factors governing an uptrend line.
Downtrend Line
The opposite of a golden cross, this is a crossover on the chart resulting from a security’s shorter-term moving average falling below its longer-term moving average. Technicians often see this as a bearish technical sign indicating the market has turned negative on the security.
Death Cross
A chart pattern comprised of two parallel trend lines, which form a trading band. Channels take the form of uptrend, downtrend and horizontal.
Channel
Forecast Stock Return is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months.
FSR
Fan formation/Fan reversal pattern The fan formation is a technical pattern that is based on the use of multiple trend lines to denote a major trend reversal. The fan pattern gets its name as it basically resembles a “fan”. It should have a minimum of three trend lines (uptrends or downtrends). The break out/break down of the third downtrend/uptrend often completes the fan pattern and signals the start of a major trend reversal. The starting point of these trend lines should come from a significant peak or a significant trough.
Broadening Top Formation The Broadening top is a rare technical formation that resembles an inverted triangle pattern. It is formed by price swings that are increasingly widening and expanding volume. The most common of these broadening top patterns are the three ascending peaks and two descending troughs. The combination of wide price swings and increasing volume often convey an increasingly volatile and emotional market that's basically out of control. This pattern is often associated with market tops rather than market bottoms. The confirmation of the Broadening top occurs when the price violates the second of these two troughs.
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Appendix
A crossover on the chart that involves a security’s shorter-term moving average (such as the 50-day moving average) crossing above its longer-term moving average (such as the 150-day or 200-day moving average). Technicians often interpret this crossing of two moving averages as a bullish technical sign that suggests the market has turned in favor of the security.
Golden Cross
An open space in a chart created when a stock (or market) opens either higher than its highest level attained during the prior session (referred to as a gap up or an upside chart gap) or lower than its lowest level reached during the prior day (called a gap down or a downside chart gap). Some gaps are caused by events and should be ignored: ex-dividend gaps, new share issues, and expiration of futures contracts.
Gap
Head-and-Shoulders Pattern This technical formation is one of the best known of the reversal patterns. There are two types of head-and-shoulders patterns that often appear on the charts – H/S top and H/S bottom. Both of these patterns often denote the process of a reversal either from a bullish or bearish trend. Head-and-shoulders formation often is comprised of a left shoulder, a head, and a right shoulder, and a line drawn across its shoulders defines its neckline. The breaking of the neckline to the upside confirms a head-and-shoulders bottom breakout, which signals the start of a bullish reversal favoring higher prices. The violation of neckline to the downside validates a head-and-shoulders top, reaffirming a bearish reversal of lower prices.
Internal Trend Line A single trend line connecting at least several high and low points for a stock (or market) over time. Linear Regression Band A common statistical technique often used by investors/traders to better forecast values by utilizing the least
squares fit method to plot a trend line. A linear regression band consists of upper and lower bands. These bands are calculated by computing the number of standard deviations above or below of the regression line.
Moving Average (m.a.) This is a technical indicator frequently used in technical analysis to show the average value of a security’s price over a set period of time. This tool is designed to smooth out a stock’s (or market’s) shorter-term fluctuations to provide a better picture of an underlying trend. Moving averages generally are used to measure momentum and define areas of possible support and resistance. Moving averages can be helpful as they emphasize the direction of the dominant or prevailing trend and also tend to smooth out price and volume fluctuations, or “noise,” giving the trader or investor a clearer picture of the security in question. Many moving averages exist.
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Appendix
Relative strength is a performance comparison between a sector, group, or stock and the S&P 500 Index over a specified time frame. Our time frame is often a one-, three-, and six-month basis but does vary according to investment orientation.
Relative Strength
When one day’s range (high and low) exceeds the prior day’s range, and the stock (or market) in question closes near its daily peak, this is referred to as a positive “outside” day. A negative “outside” day would be recorded if the stock (or index) finished near its daily low after having a wider range than the prior session. The same rule can be applied on a weekly and monthly basis as well.
Positive/Negative “Outside” Day
Opposite of Overbought. A technical condition that occurs when the price of a security has fallen to such a degree that the price becomes undervalued or has reached the lower band of its trading range prompting a potential rally.
Oversold
A technical condition in which the price of a security has risen to such a degree that the price becomes overvalued or has reached the upper band of its trading range resulting in a potential pullback in price.
Overbought
This is a trend line that is drawn across the bottoms or tops of the left shoulder, the head and the right shoulder of a potential head-and-shoulders bottom or top pattern. When prices break through this neckline support level and continue falling after forming the right shoulder, it confirms a head-and-shoulders top formation. Conversely, neckline resistance is a trend line drawn across the tops of the left shoulder, the head and the right shoulder. When prices break above this neckline resistance level and keep on rising, it typically completes the head-and-shoulders bottom pattern.
Neckline Support/Resistance
Market Return Assumption is defined as the one-year local market interest rate plus 5% (a proxy for the equity risk premium and not a forecast).
MRA
RRD Rating/Return Divergence is automatically appended to the rating when stock price movement has caused the prevailing rating to differ from that which would be assigned according to the rating system and will be removed when there is no longer a divergence, either through market movement or analyst intervention.
Support An area where increased buying interest is likely to develop during a decline. These points, which can take several forms (minor, major, etc.), often provide downside protection for an issue in a primary uptrend, but only temporary relief to an issue in a primary uptrend, during which time many support levels are often broken.
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There are three different types of Triangle patterns – Symmetrical, Descending and Ascending. Symmetrical Triangle is considered to be a continuation pattern that often signals a period of consolidation in a trend followed by a resumption of the prior trend. It is formed by the convergence of a descending trend and an ascending trend. An Ascending Triangle is a bullish pattern, which is denoted by two trend lines – a flat trend line and an ascending uptrend line. A Descending Triangle is a bearish pattern. It is the opposite of the Ascending Triangle in that there is a flat trend line and a downward sloping downtrend line.
Triangle Patterns
A chart pattern marking a period of distribution following an uptrend. The larger the top, the greater the downside potential following its completion. It, too, can take many forms.
Top
Description and Methodology This report provides technical analysis on a dynamic list of stocks that, we believe, are of a wide interest.
Please note that technical views are highly variable and will change with market conditions. Accordingly, these ratings are only valid as of the publication date.
Because CIO WMR equity sector analysts and WMR technical analysts employ different analytical methodologies, technical recommendations are, at times, contradictory to fundamental recommendations for the same security. For the latest company ratings by WMR sector analysts, please refer to the most recent equity sector research reports, located in the Equity Section on the Online Services Research website.
For more background on the content of this report, please see Technical Analysis Research Primer, 18 February 2010.
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Statement of Risk
Equities - Stock market returns are difficult to forecast because of fluctuations in the economy, investor psychology, geopolitical conditions and other importantvariables.
Required Disclosures
Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer thatthe analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of hisor her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the researchreport.
CIO Wealth Management Research stock recommendation systemAnalysts provide a relative rating, which is based on the stock’s total return potential against the total estimated return of the appropriate sector benchmark overthe next 12 months.
Sector Relative Stock ViewOutperform: Expected to outperform the sector benchmark over the next 12 months.Marketperform: Expected to perform in line with the sector benchmark over the next 12 months.Underperform: Expected to underperform the sector benchmark over the next 12 months.
Under review: Upon special events that require further analysis, the stock rating may be flagged as “Under review” by the analyst.Suspended: An outperform or underperform rating may be suspended when the stock's performance materially diverges from the performance of its respectivebenchmark.Restricted: Issuing of research on a company by WMR can be restricted due to legal, regulatory, contractual or best business practice obligations which are normallycaused by UBS Investment Bank’s involvement in an investment banking transaction in regard to the concerned company.
Technical Research Rating Definitions
Rating Corresponding Rating Category Definition and criteriaBullish Buy Well-defined, reliable uptrend, an increase in the rate of change
(or strong momentum) and confirming technical indicators.Neutral Hold Trading range trend, a flat rate of change and confirming
technical indicators.Bearish Sell Negative or weakened trend, momentum and confirming
technical indicators.N/A Not enough historical data to make an evaluation.
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For a complete set of required disclosures relating to the companies that are the subject of this report, please mail a request to UBS CIO Wealth ManagementResearch Business Management, 1285 Avenue of the Americas, 20th Floor, Avenue of the Americas, New York, NY 10019.
Disclosures (8 July 2015)Apple Inc. 3, 5, 6, 7, 8, Exxon Mobil 2, 5, 6, 7, 8, General Electric Co. 2, 3, 4, 5, 6, 7, 8, 9; Google Inc. 2, 3, 5, 6, 7, 8, Johnson and Johnson 1, 2, 5, 6, 7, 8,Microsoft Corp. 1, 2, 3, 5, 6, 7, 8,
1. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been,provided.2. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being,or have been, provided.3. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.4. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the nextthree months.5. This company/entity is, or within the past 12 months has been, a client of UBS Financial Services Inc, and non-investment banking securities-related services arebeing, or have been, provided.6. Within the past 12 months, UBS Financial Services Inc has received compensation for products and services other than investment banking services from thiscompany.7. UBS Securities LLC makes a market in the securities and/or ADRs of this company.8. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from thiscompany/entity.9. The equity analyst covering this company, a member of his or her team, or one of their household members has a long common stock position in thiscompany.
