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UBS thinks the comeback from the early August market rout was low quality, leaving the market in a fragile state that could trigger a 10% to 15% pullback over the next couple of months. “I am tactically bearish for the next 2 months,” wrote Rebecca Cheong, head of Americas equity derivatives strategy for UBS, in a note. “The weak market internal bias suggests that even a slight disappointment in any of the upcoming economic releases could trigger large unwind. On no news event, moderate volume selling could continue in the market.” The S & P 500 began August with a violent sell-off as investors grew concerned about a slowing economy and dumped bull market technology leaders such as Nvidia . Global markets overall were shaken by the unwind of a hedge fund trade involving the Japanese yen . The S & P 500 rapidly rebounded, though, making back most of the losses and approaching a new high once again. Tech shares, however, remain far below their highs. .SPX YTD mountain S & P 500, YTD And September has gotten off to a sour start with the S & P 500 down four of the first five trading days. “August was a bad quality rally,” wrote Cheong. The bank’s proprietary model shows the comeback “was associated with constant sell-the-rally profit taking and lack of buy-the-dip flow – an indication that investors are losing conviction in the market,” she added. Other reasons that make the trader bearish: UBS clients have sold stocks 11 of the last 12 days. Corporate buybacks lately have been lackluster. Trend-following CTAs could add to downside volatility by selling on any pullback. Cheong suggested hedges that would pay off if the S & P 500 is down 10% in one month and 15% in two months. The trader sees small cap, financial and high yield sectors as particularly vulnerable here. There’s inflation data this week along with the usual jobless claims reading on Thursday, which has taken on greater importance. Retail sales data is out early next week before the Federal Reserve’s next rate decision, and the U.S. presidential election is ahead in early November with a tight race expected. “Investors are on the edge and are vulnerable to any bad news,” stated the UBS note. “Many investors have had a good year and are ready to cut some risk 2 months before election.”
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https://www.cnbc.com/2024/09/10/ubs-trader-turns-bearish-for-next-two-months-worried-about-a-large-unwind.html
