(Bloomberg) -- Investors should “sell the rallies” as the Standard & Poor’s 500 Index may drop to 880 by early November, according to technical analysts at UBS AG who look at the so-called Dow Theory to predict market trends. A decline below 1,012 may lead the benchmark measure for U.S. equities to the next support level at 980, UBS analysts Michael Riesner and Marc Mueller wrote in a report dated yesterday, when the S&P 500 retreated 2.2 percent to 998.04, the biggest loss in two weeks.
Dow Theory, developed by Wall Street Journal co-founder Charles Dow in 1884, holds that moves by the industrial average must be “confirmed” by the transportation average in order to be sustained. Dow Theory is a version of technical analysis, the study of charts patterns to predict prices.Recent breakouts in the S&P 500 and the Dow Jones Industrial Average “have not yet been confirmed by a new high in the transport sector,” the analysts wrote. “We don’t think the recent breakouts will be sustainable.”
The S&P 500 has rebounded 48 percent from a 12-year low on March 9 and reached a high for the year on Aug. 27, as did the Dow average. Stocks have fallen this week amid concern the global rally in equities has outpaced the prospects for an economic recovery.“The next bigger move will in our view be on the downside,” according to Riesner and Mueller. “Cyclical sectors are generally starting to underperform.”The Dow Jones Transportation Average, which reached a high for the year at 3,774.12 on Aug. 13, lost 1.2 percent last week, while the Dow average rose 0.4 percent. The two indexes had reached highs for 2009 simultaneously on Aug. 7, which was considered a bullish signal by followers of the Dow Theory.
No comments:
Post a Comment