September 2014 Technical Market Outlook

Peter Lee – Chief Technical StrategistCIO Wealth Management Research

This report has been prepared by UBS Financial Services Inc. (“UBS FS”).

All charts and data are sourced from Thomson Reuters, Bloomberg, Indexindicators.com and UBS CIO WMR as of 22 September 2014

23 September 2014

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Technical Highlights

• Equities – US Equities – We continue to detect near term technical divergences in the broader US equity markets. For instance, the percentageof SPX stocks trading to new 52-week highs are not yet confirming the recent SPX record highs. In addition, the percentage of SPX stockstrading above its 200-day moving average are also diverging against price. We suspect that one of the reasons why SPX has not correctedmore than 10% over the past 3 years is because of the low global interest rate environment which forces global investors to seek out megacap and larger cap US indexes such as OEX, SPX and NDX as compared to the smaller/mid-cap indexes (RUT and MID). Are the abovedivergences implying a maturing rally or is this a normal consolidation that leads to the next rally?

• Currencies – On an intermediate term basis, the US Dollar Index (DXY) remains confined to a 2-year trading range between 78.6-79 and84.75-84.5. However, the recent strength in DXY is now challenging pivotal resistance coinciding with the top of a large triangle pattern datingback to 2008/2009, July 2013 highs and convergence of the 2011 rising wedge trend lines at 84.75-85.5. A convincing breakout above 84.75-85.5 confirms a major breakout and suggests upside targets to the high-80s, over time. Key initial support resides along the low 80s 81-83).78.6-79 or the 203-2014 lows remains major intermediate term support.

• 10-year US Treasury yields – TNX is also challenging key near term resistance at 2.65-2.69%. A breakout here can send US interest rates to2.8-2.82% and possibly to 3.04-3.08%. However, there is formidable near term resistance at 2.65-2.59% coinciding with the June/Jul/y/Sep2014 highs as well as the January/February 2014 downtrend. Repeated failures to surpass this key resistance can lead to another consolidationback to the recent lows at 2.3-2.4%. Trading below the lows can trigger a decline to 2.1-2.2% or the middle of the long-term downtrendchannel and the 30-month moving average.

• Commodities – Has the super bull cycle in commodities ended? The Bloomberg Commodities Index Total Return has finally violated its1999 uptrend (243-255). This technical significant as a major break of its primary uptrend can end the supper bull cycle in commoditiesand opens the door for a deeper sell off to 225 (near term) and possibly to the 2009 bottom at 203 (intermediate term). Initial resistanceis now evident near its recent breakdown at 243-255 and then along 260-279. .

• S&P 500 Sectors – SPX Index is a market capitalization weighted index that is heavily influenced by the largest market cap names. Into the endthird quarter (end of September) and possibly into the end of fiscal calendar year-end (end of Oct 2014), we believe that window dressing mayonce again influence the near term directional trends as institutional investors mark up and mark down their portfolios. The strong sectorshead into end of third quarter and the end of fiscal calendar year are concentrated with the S&P Healthcare, S&P Technology and S&PFinancials. Since these are the three largest market cap weighted SPX sectors their performances can directly impact the underlining SPX Index.We suspect money managers will continue to mark up these outperformers. On the other hand, the laggards for the quarter and for the yearare confined to the defensive sectors as well as to the commodity based sectors such as Energy and Basic Materials. We suspect professionalinvestors will avoid or possibly continue to mark down these positions over the next few weeks/month.

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S&P 500 Index (SPX) Technical Forecasts• Wall Street 2014 year-end SPX forecasts continue to rise further

13 sell side equity strategists made year-end 2014 forecasts late last year (December 2013). The average SPX forecast was 1,956.

Dec 2013 Barron's Round Table also made Year-End 2014 projections. The mean SPX projection was 1,977.

June 2014 Reuters survey of 41 Strategists suggests median Year-End 2014 SPX target of 2,000 and recent Sep 2014 Barron's Round Table mean SPX target is now 2,030.

• SPX Technical Targets 2,011-2,019 (trading), 2,068-2,094 (medium), 2,134-2,287 (intermediate) and 2,509 (long-term)

• SPX Downside Risks 1,945-1,978 (trading), 1,905-1,921, (near term), 1,814-1,850 (medium), 1,738-1,790 (intermediate) and 1,597-1,650/1,534-1,543 (long-term)

Trading/Near term outlook – The February to May 2014 ascending head and shoulders bottom breakout above 1,902.17 on 5/27/14 led to a sharp rally that achieved ourtechnical target of 1,989.98 as SPX traded to 1,991.39 on 7/24/14 before undergoing a 4.35% correction. If we fast forward to June to present it appears another ascendinghead and shoulders bottom pattern has developed. Recent failure to surpass 2,011-2,019 or the rising neckline resistance sets the stage for a consolidation to 1,945-1,978thereby solidifying the right shoulders. A convincing breakout above neckline resistance at 2,019.26 can then trigger a rally to 2,068-2,094, near term and then to 2,133.74as early as year end 2014 and possibly into early 2015. Key near trading/near term supports are: 1,945-1,978 and 1,905-1,921.

Intermediate term outlook – The June 2013 uptrend channel remains the prevailing and dominant trend. The bottom of channel is at 1,921 (key support) and the top of thechannel is at 2,068 (key resistance). Since the height of this channel is 147 points a breakout above 2,068 renders an upside target to 2,215 (intermediate-term). The twoother uptrend channels namely the March 2009 channel (1,543-1,915 or 372 points) and the October 2011 channel (1,790-2,017 or 227 points) also renders upside targetsto 2,287 and 2,244, respectively. Key medium/intermediate supports: 1,814-1,850 and 1,738-1,790 or the Feb 2014 low and the bottom of the Oct 2011 uptrend channel.

Long-term outlook – The Broadening Top/Head and the Head and Shoulders Bottom patterns from the late 1990s (1998) remain the structural trends. The May 2013 breakoutabove 1,597-1,600 may have confirm a new long term trend. If this prior breakout is confirmed via a successful retest of 1,600 a technical base of nearly 909 points rendersSPX target to 2,509, longer term. Long term support resides at the May 2013 major breakout and the 30-month ma at 1,600-1,653 as well as the bottom of the Mar 2009uptrend at 1,534-1,543.

• March 2000 structural trend and the March 2009 cyclical bull trend will likely end in the next 6-months to 2-years

We believe the cyclical bull trend from Mar 2009 low has entered into the third-stage of a four-stage bull market rally (Jan/Jun 2013) or commonly referred to as theMania/Spec/Melt-up phase. This is often the emotional part of a bull rally where the investment public (retail investors) are active. We also believe the structural sidewaystrend from Mar 2000 will likely end as well. Both of these trends (i.e., cyclical and structural) will reach an inflection point in the next 6-months to 2-years. We suspect theextension of the May 2013 trendline breakout at 1,600 defines the equilibrium/fair value of SPX for years to come. This would then imply that a successful test of this pivotalsupport can validate the May 2013 move as a structural breakout and not a false breakout/bull trap. In the mean time, we maintain two possible scenarios for SPX:

Scenario 1 (Bullish View) – The May 2013 break out above 1,600 hints of the next major structural bull trend. However, a pullback to or near this prior breakout is probablyneeded to reaffirm a multi-year (14-plus year) technical base. A Mid-term Election Year correction this year (10+%) can help to set the stage for the next cyclical bull rally (1-3years). This bull rally then transitions into the next structural bull market (8-20 years).

Scenario 2 (Bearish View) – The May 2013 break out at 1,600 is a false breakout or a bull trap as SPX fails to maintain this breakout and reverses below its prior key breakout.This then triggers a climatic sell-off (20% to 30%-plus) and in the process SPX breeches its 30-month ma (1,653) as well as its pivotal March 2009 uptrend (1,534-1,543). SPXquickly falls to 1,100-1,200 thereby washing out the remaining sellers in the marketplace and setting the stage for the start of the next structural bull trend.

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SPX Index – Monthly Seasonality Study (1929 – Present)

As we head into another Mid-term Election Year (2014), the weakness in SPX from May to Sep often sets the stage for strength from Oct-Dec timeframe. So did a mid-election year low already occurred in Feb 2014 at 1,737.92 or will another Mid-term Election low develop into Sep/Oct timeframe? If a correction does not occur during the seasonal weakness period then does this imply a more muted year-end rally this hear?

Since 1928/1929 the average intra-year pullback during Mid-term Elections (Year 2 of a 4-year US Presidential Election Year cycle) is -20.3%. This is more than the average intra-year correction of -16.7% during all years (1928-2013) and higher than during Year 1 (-17.6%), Year 3 (-14.6%) and Year 4 or Election Year of -14.3%. Also during Mid-term Elections the percentage of time SPX experienced intra-year decline less than 10% is 23.8%, intra-year decline greater than 10% but less than 20% is 33.3% and intra-year decline greater than 20% is 42.9%.

Yearly %Time Period Duration Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Returns

All1929-2014 Mkt 84 years 1.25 -0.12 0.59 1.25 -0.12 0.72 1.52 0.69 -1.07 0.43 0.63 1.46 7.23

2.93 3.340.41 0.46

Bear1929-1949 Mkt 20 years 1.85 -0.28 -1.88 0.43 -1.06 3.23 3.09 2.66 -3.01 -0.81 -2.61 0.77 2.39

8.99 0.01

Bull1949-1966 Mkt 17 years 1.06 -0.42 1.16 1.20 -0.28 -0.40 2.93 -0.50 -0.20 0.97 2.27 2.17 9.96

2.03 5.51 0.20 0.55

Bear1966-1982 Mkt 16 years 0.88 -0.79 0.73 1.28 -1.44 0.06 -0.25 0.24 -0.36 1.17 1.29 0.84 3.65

0.06 3.000.02 0.82

Bull1982-2000 Mkt 18 years 2.30 0.96 1.45 1.33 1.35 1.19 0.55 0.78 -0.35 0.78 0.99 2.39 13.72

2.52 5.680.18 0.41

Bear2000-2014 Mkt 13 years -0.87 -0.87 1.91 2.00 -0.04 -1.40 0.42 -0.18 -1.18 1.27 0.79 1.20 3.05

-1.16 1.12-0.38 0.37

Secular Bear/Trading Markets (3) 0.62 -0.65 0.25 1.24 -0.85 0.63 1.09 0.91 -1.52 0.54 -0.18 0.94 3.03Average returns for three months 2.62 1.38(Jun, Jul & Aug vs. Nov, Dec & Jan) 0.87 0.46

Secular Bull Markets (2) 1.68 0.27 1.31 1.27 0.54 0.40 1.74 0.14 -0.28 0.88 1.63 2.28 11.84Average returns for three months 2.27 5.59(Jun, Jul & Aug vs. Nov, Dec & Jan) 0.19 0.47

First Year (year 1) 0.80 -2.10 0.49 2.40 2.00 0.49 2.29 -0.07 -1.64 -1.31 0.54 0.25 4.132.71 1.58

Mid-term Election (year 2) 0.69 0.14 0.08 0.67 -1.06 -1.24 0.62 -0.64 -1.19 2.59 2.02 1.76 4.44-1.26 4.47

Pre-election Year (year 3) 3.33 1.29 0.67 2.21 0.09 1.32 0.57 0.43 -1.25 0.74 -1.46 2.41 10.352.32 4.28

Election Year (year 4) 0.30 0.14 0.69 -0.75 -1.66 1.77 1.97 2.85 -0.40 -0.29 0.05 1.45 6.126.59 1.80

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Stock Market Psychology – Fear, Greed, and Hope

Optimism

Excitement

Thrill

Greed/Euphoria – 1st Half 2007

Anxiety

Denial

Fear – 1st Half 2008

Desperation

Panic

Capitulation

Despondency – 4th Qtr 2008

Depression – 1st Qtr 2009

Hope

Relief

Optimism – 1st Qtr 2012

Are we here?

Greed/Euphoria – 2014

Excitement

Thrill

1st Half 2016

2015

2nd Half 2016/2017

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4 Stages of a Bull Rally

Accumulation (Stealth) Phase Awareness Phase

Mania/Speculative/Melt Up Phase

Smart Money –Insiders, Contrarians, and Deep Value Investors

Blow off PhaseTime

Stage I – 2009 to 2010

First deep correction

Price

Delusion

Bear Trap

Media/Press Attention

Are we here?

"New Paradigm"

Optimism

Greed

Stage II – 2011 to 2013

Institutional Money –Professional traders, Money Managers, Hedge Funds, and etc.

Public Money -Retail Investors

Return to "Normal"Denial

Bull Trap Fear

Despair

Capitulation

Historical Mean

Return to the Mean

Acceleration

Stage III – 2013 to 2014 Stage IV – 2015 to 2016?

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SPX Index – Secular Trends (1900-2020) – 2 Possible Scenarios

8 structural bull: 1982-2000, 1949-1966, 1921-1929, 1896-1906, 1861-1881, 1843-1853, 1815-1835, (2013-Present?)

8 structural bear/trading range: (2000-2013?), 1966-1982, 1929-1949, 1906-1921, 1881-1896, 1853-1861, 1835-1843, 1802-1815

Scenario 1 = May 2013 breakout at 1,597-1,600 is successfully retested thereby confirming the start of the next structural bull.

Scenario 2 = Failure to maintain 2013 breakout (1,597-1,600) suggests a final sell off and then the start of the next structural bull.

SPX Secular/Structural Trend for 2000-2020

New Equilibrium level/Fair Value/New Norm??? 2014-2015

2016-2017

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Dow Jones Industrial Average – 1964-1984 and 1994 to PresentAlthough no two markets are the same the 1964 to 1984 market and the 1994 to present appears to be strikingly similar. That is, the 1966-1982 structural sideways market(stagflation) was preceded by a spectacular Nifty-Fifty bubble burst. In addition, geopolitical events (OPEC Oil embargo) created extreme volatility from a macro perspective. If wefast forward to the 1994-present market we have experienced three bubble bursts including the 2000-2002 Tech/Telecom bubble, the 2007-2009 Real Estate/Credit/Financialbubble and the 2008-2009 Commodities bubble. From a macro/geopolitical perspective the Sovereign Debt crisis in Europe, the Currency problems in Emerging Markets and theMiddle East and Ukraine/Russia events have created volatile market conditions. We also find it uncanny that both markets generated simultaneous and yet competing technicalformations including a bearish Broadening Top (higher highs and lower lows pattern) and a Head and Shoulders Bottom. Note that towards the later stage of the prior Stagflationcycle (1966-1992) a Head/Shoulders Bottom breakout and the negation of a Broadening Top during 1982/1983 that first signal the start of the next major structural trend.However, it was the final pullback of nearly -17% to 1,082 (6/84) that confirmed the end to the structural sideways market and the beginning of the next structural bull trend asDJIA enter into a parabolic move of +153% from 6/84 to 8/87. Is the recent breakout above 14,198 (3/13) and the subsequent negation of the Broadening Top at 16,577 (12/13)signal the end to the 2000-2014 structural sideways trend? And will a successful pullback to 14,198 confirm the start of the next structural bull?

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S&P 500 Index – 1964-1984 and 1994 to PresentSimilar to the DJIA study in the previous page we find it intriguing the current market conditions for SPX over the past decade or so also closely parallels that of the 1964-1982market from both a macro/geopolitical/tail risk as well from a technical perspective. Although it appears that the past 14-plus years have been much more volatile andunpredictable than the prior 1966-1982 secular trading range market, the duration and magnitude of trading swings are quite comparable. That is, in the past cycle it required 16-plus years to repair all the damages incurred from the Nifty-Fifty blowup, Oil Embargo and Stagflation before a new structural bull market can begin in earnest in 1982. Today, theSPX is also working through 14-plus years of the unwinding of excesses from the Tech/Telecom, Credit/Financial/Real estate, Commodities as well as the geopolitical/macro eventsin Europe, Middle East and Emerging Markets. Notice that at the height of the prior Broadening Top pattern widespread speculation led to an extreme high of 173 from anextreme low of 62 resulting in a 2.79/1 ratio. SPX recently traded to an extreme high of 1,991 from a low of 667 or a ratio of 2.99/1. This then suggests SPX has now exceeded theprior rally and may vulnerable for a pullback. In the past cycle the major breakout off of a multi-year technical pattern needed to retrace back to prior breakout to confirm a bullishpattern. For example, in Jan 1983 SPX broke out at 146 prompting a rally to 172.76 (Jun 1983) before a correction of -14.76% to its prior breakout at 147 (Jul 1984). A successfultest here confirmed the prior breakout setting into motion the next structural bull trend (1982-2000). Although we not necessarily calling for the same scenario to occur we cannothelp but notice the May 2013 breakout near 1,600 has yet to be confirmed. Will a successful retest of this key support finally confirm the start of the next structural bull trend?

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SPX Index – Long-, Medium- and Short-term Trends

The Mar 2009 uptrend channel (1,543-1,915) implies a technical base of 372 points. Abreakout above 1,915 renders a target to 2,287. A second uptrend channel from Oct 2011(1,790-2,017) or 227 points hints of a breakout above 2,017 to 2,244. Key supports: 1,978(10-wk ma), 1,904-1,928 (Aug low/30-wk ma), 1,850, 1,790-1,814 (2011 uptrend/Apr low)

The Mar 2009 SPX rally is over 5-yr/6-mo old, with gains of 202.83%. The prior 2 bull rallieswere: 1994-2000 (5 years/11 months and 248%) and 2002-2007 (5 years and 105%).Although matured, the rally can continue and match the 1994-2000 rally as long as SPXretains the following key supports: 1,905-1,921 (initial) 1,814-1,880 (secondary), 1,738-1,790 (medium term), 1,597-1,632 (intermediate term) and 1,534-1,560 (long term).

A third uptrend channel from the Jun 2013 low between 1,921 and 2,068 defines theprimary trend over the past year. A breakout above 2,068 suggests +147 points or upsideto 2,215. Initial support resides at 1,976-1,979 or 50-day ma and 9/16/14 low. Violationhere opens the door for a normal correction towards crucial secondary support at 1,905-1,921 or Aug low, 150-day ma, and the bottom of Jun 2013 uptrend.

The Feb-May 2014 ascending head/shoulders bottom breakout above 1,902.17 on5/27/14 basically met the technical target of 1,989.98 as it traded to 1,991.39 (7/24/14).Another rising head/shoulders bottom pattern has developed in the past 3 months. Aconsolidation to the left/right shoulders at 1,945/1,953 and 1,978.5 can set the stage fora breakout above neckline resistance at 2,019.26. Will a confirmed breakout lead to anupside target to 2,133.74 as early as year end 2014 and possibly into early 2015???

Mar 2009 uptrend channel = 1,543-1,915Breakout above 1,915 +372 or 2,287

Oct 2011 uptrend channel = 1,790-2,017Breakout above 2,017 +227 or 2,244

Breakdown below 1,543 1,171Break down below 1,790 1,563

Jun 2013 uptrend channel = 1,921-2,068 (147 points)

Breakout above 2,068 2,215

Breakdown below 1,921 1,774

Feb-May Head/Shoulders Bottom breakoutabove 1,902.17 +87.81 @ 1,989.98

Jun Head/Shoulders bottom breakoutabove 2,019.26 +114.48 @ 2,133.74???

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US Equities – SPX, Russell 3000, Russell 1000 and NDX 100

The Russell 3000 Index (RUA) broke out above 968 in May 2013. This can extend therally to the top of its 2009 rising wedge (1,237). Since RUA is one of the broadest USmajor indexes it tends to be a good barometer of the overall health of US stocks. Keysupports: 1,136-1,140, 1,085-1,099, 1,043, 985-988, 968-972, 927, and 904.

SPX Index has broken out above the extension of the 2000/2007 channel near1,597 (May 2013) thereby negating a broadening top pattern. This majorbreakout suggests 909.30 points or upside to 2,509, longer term. Keysupports: 1,905, 1,814-1,835, 1,738, 1,652, 1,597, 1,553-1,576, and 1,522.

The Russell 1000 Index, a proxy for the large-cap US stocks, has convincinglybroken above its key resistance at 888 in May 2013. This breakout andpositive outside month in Aug 2014 suggests upside to 1,215, or the top of its2009 rising wedge. Supports: 1,062-1,064, 1,012-1,021, 971, 889, 827-859.

The NASDAQ 100 or the large cap OTC market continues to lead the broaderNASDAQ Composite market as it has convincingly broken out above the top of its2002 uptrend channel (2,944) and above its 50%, 61.8% and now 76.4%retracements (2,806, 3,280, 3,867) from the 2000–2002 decline. This breakoutrenders next upside targets to 4,147-4,240 (intermediate) and then to the Mar 2000record high at 4,816 (long term). Key supports: 3,837-3,845, 3,738,-3,761, 3,703,3,638-3,655, 3,414-3,419, 3,302-3,322, and then 2,955-3,166.

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US Equities – Dow Jones Industrial Average, Dow Jones Transportation Average, NYSE Composite and Russell 2000

The Dow Jones Transportation Index breakout above the top of its broadening toppattern at 7,404 (point E) in Nov 2013 renders upside to the top of its 2009 rising wedge(9,008). Supports: 7,872-7,959, 7,723, 7,436-7,619, 7,244, 6,960-7,082, 6,498, 5,487.

The Dow Jones Industrial Average has generated a negative outside month in Jul2014 but has managed to stay above the top of its broadening top breakout (pointE-16,800). This breakout still renders upside to the top of its 2009 rising wedge(17,238-18,130). However, a rising wedge formation warns of a top. Keysupports:16,334-16,609, 16,015, 15,341, 14,926, 14,719-14,778, and 14,198

NYSE Composite also moved above its 2007 high (10,387) confirming a new recordhigh. Minor resistance is 11,106-11,108 or the Jul/Sep 2014 highs. Trading abovesupply zone renders upside to the top of its 2009/2010 uptrend channels(12,417/12,993) and then 14,356. A negative outside month in Jul 2014 warns of acorrection to key supports at 10,558-10,640, 10,335-10,387, 9,732, and 8,718-8,815.

The Russell 2000 Index is one of the many US indexes that is struggling to clearconvincingly above the top of its 2000 uptrend and Mar/Jul 2014 record highs at 1,185-1,214. This negative divergence warns of a loss of leadership and/or a matured rally. Aconfirmed break out here can help to extend the rally to 1,445 or to the top of its 2009uptrend channel. However, repeated failed attempts to clear above 1,185-1,214 maywarn of a correction to key supports: 1,132, 1,083-1,086, 1,009-1,009.5, 985, 856-876.

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International Equities–Nikkei 225, EAFE, EM & Shanghai SSE

The MSCI EAFE can still trend higher as a breakout above 1,826/1900 or its 2011 high,61.8% retracement from 2007–2009 decline and the third downtrend of a Fan patternrendering upside targets to 2,045 and 2,399. A Jul 2014 negative outside month warnsof downside risks to: 1,840-1,860/1,787-1,812/1,702-1,724/1,591/1,576.

In Dec 2013, Nikkei 225 Index traded above its 1996 downtrend (15,734) and May 2013high (15,943). However, an overbought condition and lack of a follow through to abreakout led to a correction to 13,885 (Apr 2014). This sets the stage for a flag/pennantpattern. A breakout above 15,943-16,320 renders upside targets to 18,300 or 2007 highand above this to 19,207-22,976 or 38.2-50% retracement from 1989-2008 decline.Supports: 15,760-15,829, 15,400-15,500, 15,027-15,101, 14,500-14,754, and 13,885.

MSCI Emerging Markets has improved via the May 2014 breakout above its 2011downtrend (1,018). This led to a sharp rally to the 2012/2013 highs and the Nov 2007downtrend at 1,085. A pivotal breakout here renders upside targets to 1,212(medium term) and then the 2007 high of 1,345 (longer term). However, failure tobreakout above 1,085 and a negative outside week (8/1/14) hint of a pullback to1,030-1,040/1,000-1,010. Additional support are: 973-977, 900-930, and 850-878.

The Shanghai Composite SSE Index is attempting to clear above a 4-plus yeardowntrend channel between 1,471 and 2,288. A confirmed breakout here signals amajor trend reversal opening the door for a sustainable recovery to 2,445-2,476,2,717, 2,978, 3,096-3,187 and then to 3,368. Key supports are: 2,178-2,183,2,135-2,127, 2,080-2,087, 1,974-1,991, 1,946-1,949, 1850.

Failure at the top of a major 2007triangle (1,085) coupled with a negativeoutside week (8/1/14) suggests apullback to 1,030-1,040/1,000 -1,010.

Shanghai Composite is close toconfirming a breakout above a welldefined 4-plus year downtrendchannel (1,471- 2,288).

A breakout above a Flag/pennant formationat 15,943-16,320 confirms the start of majortrend reversal for Nikkei 225 Index.

A recent Fan pattern breakout at1,900 still suggests a retest ofthe all time 2007 highs at 2,399.However, a negative outsidemonth pattern in Jul 2014 warnsof a correction before next rally.

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Currencies – US Dollar Index, Euro and Yen

For the past 6 years USD has been confined to a symmetrical triangle between 74.75and 85.5. USD is now nearing critical resistance at 84.75-85.5 coinciding with the topof 6-year triangle, extension of 3-year rising wedge and Jul 2013 high. A breakout hereopens the door for a major move up. Key support resides at 81-82.5 and 78.6-79.

US Dollar Index (DXY) remains in a 2-plus year trading range between 78.6-79 and84.75. A recent breakout above key initial resistance at 81.02-81.48 or the Nov2013/Jan/Jun 2014 highs can extend the rally to 84.75 and then to 87.17-87.63.However, a failure to clear above 84.75 coupled with a near term overboughtcondition can lead to a consolidation to key initial support at 82.28-82.6 and 81-81.5.

EUR/USD has failed to surge above its pivotal 2008 downtrend and the 61.8%retracement from the 2011–2012 decline at 1.39. A recent break of key support at1.3475-1.3509 or the Jul 2012 uptrend confirms a rising wedge and warns of retest ofcritical support at 1.2745-1.2786 or 61.8% retracement from 2012-2014 rally and theApr/Jul 2013 lows. Below this suggests downside to 120.40-122 or 2005 uptrend andJul 2012 low. Key resistances are: 1.30-1.315/1.3295-1.333/1.35-1.36.

The Japanese Yen has cleared above major resistance at 105.44-105.5910 or the1998 downtrend and the 61.8% retracement of the 2008–2011 decline. A breakouthere renders upside targets to 112.6880 or the 76.4% retracement, 121.19-122.39or Dec 2005/Jan 2007 highs and then 124.16 or the Jul 2007 highs. Key supports:103.73-105.44 (near term), 100.74-100.90 (secondary), 94.98-96.55 (medium term)and 93.78-94.1687 (longer term).

Above 81 confirms a near term breakout and suggests aretest of the top of a 2-plus year trading range at 84.75.

US Dollar index is nearing critical resistance at 84.75-85.5.

Violation of 1.3475-1.3509 confirms a rising wedgebreakdown and suggests a test of crucial support at1.2745-1.2786. Below this opens the door for 120.4-122.

Breakout above major resistance at 105.44-105.59can extend the rally to 112.6880 and then to121.19-122.39/124.16.

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Commodities – Commodity Index, Gold, Crude Oil, and Copper

Copper remains in a 3-year descending triangle and/or head and shoulders toppattern. The 2007/2011 lows and the 50% retracement from the 2008-2011 rally at2.85-3.00 provides major support. A violation here warns of downside risks to 2.65-2.73, 2.54 and possibly 2.04. Trading above 3.28-3.45 and 3.7 confirm a reversal.

Has the super bull cycle in commodities ended? The Bloomberg Commodities IndexTotal Return has violated its 1999 uptrend (243-255). This major break of its primaryuptrend confirmed the end to the supper bull cycle in commodities and now rendersdownside risks to 225 (initially) and then to the 2009 bottom at 203 (intermediateterm). Initial resistance is visible near its recent breakdown at 243-255 and 260-279.

After falling 34% from its Oct 2012 peak Gold is confined to a technical base between1,182 and 1,428 or the 2013/2014 highs/lows. Recent violation of a smaller triangle at1,275 suggests a retest of 1,182-1, and below this to 1,151 or the 61.8% retracementfrom 2008-2011 rally. 1,015-1,029 or the Nov 2009 breakout and symmetrical trianglebreakout target at 1,015-1,029 and 936-971 is additional support. Key resistances:1,275-1,297, 1,322-1,343, 1356, 1,391-1,428, 1,488, and then 1,525-1,561.

WTI Crude Oil retains its triangle pattern since 2011 trading between 84 and 111. Thecorrection over the past few weeks is reaching a critical juncture as it tests key supportalong 91 coinciding with the Jun 2012 uptrend and 2012 internal trend. The ability tomaintain this support helps to stabilize the recent selling. On the other hand, violationhere suggests a retest of 84-84.5. Key initial supply is 95.5-97.5 and then 105-108 orthe Mar/Apr/Jun 2014 highs. Trading above 111-112 confirms major breakout andrenders upside to 114.83, 130 and then to 147-150.

Has the super bull cyclein Commodities come toan end? Violation of1999 uptrend at 245-255has confirmed a majorbreakdown signaling theend to the supper bull.

Gold remains in larger technicalbase between 1,182 and 1,428.However, the Sep violation of atriangle pattern at 1,274 suggestsa retest of 2013 low of 1,182-1,183.Below this renders downside to1,151 and 1,015-1,029.

Crude Oil retains a large 4-year triangle pattern (84 and111). A key test of a pivotal support at 91 is imminent.

Descending triangle and/orhead/shoulders top patterncontinue to pressure Copper.

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Fixed Income – US 10 and 30 Year Treasury Yields (TNX/TYX)

The 5-year US Treasury yields is where many fixed income investors are situated, and as such, canbe a good indicator for changes in US interest rates. A large and bullish triangle pattern andpossibly a flag/pennant formation has developed. A convincing move above 1.78-1.85% confirms5-year Treasury yields rising to 2.3-2.4% and to as high as 2.8-3.0%, over time. On the downside,the 10-week/30-week ma now at 1.65-1.68% and bottom of triangle at 1.52% offer key support.

A structural downtrend channel since 1981/1982. However, conflicting technical signalshave created a mixed 10-year US interest rate environment. A monthly golden cross buysignal (Aug 2013) and a positive outside month (May 2013) warn of a retest of the top ofthe channel (3.67%). On the other hand, negative outside months (Jan/Jul 2014) also hintof a decline to the 30-mo ma and the midpoint of range (2.1-2.2%) before higher rates.

TYX peaked on Dec 2013 (3.98%) near the top of its 1980s downtrend channel (3.84%)and this occurred one month before TNX peaked on Jan 2014 (3.04%). Two negativeoutside months (Mar/Jul 2014) coupled with a break of key support at 3.25-3.35% canextend the decline towards 2.6-2.8% before higher rates. A May 2013 positive outsidemonth and a golden cross buy signal on Aug 2013 suggests upside to 3.82-3.98%.

A 1-year trading range between 2.40-2.42% and 3.01-3.04% has been marginally broken as TNXfell to 2.3%. A convincing break below 2.3-2.4% confirms breakdown and still renders downsideto 2.1-2.2% and possibly to 1.84%-1.76%. A 5-month symmetrical triangle breakdown below2.6% has successfully achieved downside target of 2.30-2.35%. This has prompted a technical rallyto key near term resistance at 2.65%-2.69%. A breakout here signals the start of higher rates to2.81-2.82% and possibly to the top of trading range at 3.04-3.08%.

2.813

5-year Treasury Yields is attempting to breakoutof a triangle pattern above 1.78-1.85%.

1.78-1.85%

Golden cross buy signal and a positive outsidemonth (May 2013) suggest 3.67%. However,negative outside months on Jan/Jul 2014 alsohint of a decline to 2.1-2.2% before higher rates.

May 2013 positive outside month and a golden crossbuy signal on Aug 2013 suggests 3.84%. However,negative outside months on Mar/Jul 2014 and a breakof 3.25-3.35% renders downside target to 2.6-2.8%.

TNX is challenging key near term resistance at 2.65-2.69%.Breakout here sends rates to 2.8-2.82% and then 3.04-3.08%. Trading below 2.3-2.4% suggests 2.1-2.2% and aslow as 1.84-1.76%.

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S&P 500 Sectors – Consumer Staples and Telecom ServicesS&P Consumer Staples exceeded its technical target of 440-445 but continues totrend higher. A negative divergence between price and relative strength may besignaling a near term top. Key supports are: 443-454 (30-week ma and Aug low),438 (2011 uptrend), and 403-409 (2013/2014 lows and the 2009 uptrend).

Relative strength continues to decline despite higher prices. The 2000 uptrendbreakdown reaffirmed a loss of leadership, at least near to intermediate term.

S&P Telecom Services has successfully tested its 2010 uptrend (now at 151). AnApr 2013 downtrend breakout has triggered a recovery to 168.85-172.46.However, the 2009 broadening top pattern and a 2-year head/shoulders top stillwarn of further technical base is necessary. Key support is at 150-152/138-143.

A descending triangle in the relative strength breakdown does not bode well forthe sustainability of the Telecom Services recovery. Until its reverses back above theprevious breakdown this sector is likely to continue to underperform peers.

A successful test of 2010 uptrend coupledwith an Apr 2013 downtrend breakout hasled to an oversold rally to 169-172.5.However, a Broadening Top and aHead/Shoulders top formation still warn offuture volatility.

Despite near term improvements the Telecom Servicessector has broken below its 2002/2003 falling wedge.

The channel breakout above 320-325 in 2011renders upside to 440-445. It has exceeded thistarget. However, divergence between price andrelative strength warns of a waning trend.

2000 uptrend breakdown suggests investorscontinue to favor cyclical over defensive sectors.

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S&P 500 Sectors – Energy and FinancialsS&P Energy completed a 5-year triangle breakout in Jan 2013 rendering a retest of685-695 or the May 2008 all-time high and then to the top of its 2012 uptrendchannel. Trading above this projects upside to 749-758. However, failure to retain itschannel breakout now warns of a retest of the 30-week ma (684) and below thiscan extend the correction down to 650 or the bottom of channel.

Relative strength breakout of its 2012 downtrend channel has quickly reverseddirection. A retest of the bottom 2-year downtrend channel is now imminent.

S&P Financials with its intermediate term recovery as evident by its recent keybreakout above intermediate term resistance along its 50% retracement (295) andthe extension of the 1998 uptrend (300-305). Trading above 295-305 can extendthe rally to the 61.8% retracement (346). Key support are: 295-305 (initial) andthen 276-286 (secondary). 240-250 remains pivotal intermediate-term support.

Since the 2009 low, the relative strength trend has steadily improved. However, itstill needs to surpass its intermediate term resistance near the prior 2011breakdown to solidify the start of a sustainable outperformance cycle.

A confirmed breakout abovekey resistance at 295-305 orthe extension of the 1998uptrend as well as the 50%retracement from 2007-2009decline renders next target tothe 61.8% retracement (346).

Challenging key resistance near theprior 2011 breakdown and 2013 highs.

A large symmetrical triangle breakout during Jan2013 signals the emergence of new leadership.However, recent pullback below the top of anaccelerated channel breakout may have negatedbreakout leading to a retest of the 30-week ma(684). A break here suggests a decline to the bottomof the 2012 uptrend channel (650)

Failure to clear above the top of the 2008 downtrendchannel has led to a pullback which is now testing keysupport along the bottom of 2012 downtrend channel.

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S&P 500 Sectors – Utilities and IndustrialsThe recovery in S&P Utilities after successfully testing the bottom of its 2009uptrend channel (194) has stalled near its 2008 highs at 225. Two negative outsideweeks (7/4/14 and 8/1/14) coupled with a 7-month head and shoulders top warnsof further selling. Below recent Aug 2014 low of 203 can lead to a retest of keyintermediate term support along the bottom of its 2009 uptrend channel at 196.

The early 2014 relative strength rally has stalled as it has failed to clear abovemajor resistance coinciding with its prior key breakdown and 2009 downtrend.

S&P Industrials has broken out of 3 key resistances (450/381/337) correspondingto prior highs and uptrend channels. A positive outside week on 9/19/14 coupledwith a breakout above its Jun 2014 high of 479.64 suggests longer term target toas high as 631. On the downside, the 10/30-week ma at 461/459 offers key initialsupport. Additional support is also visible along 438-441, 418-427 and 360-381.

A 5-year symmetrical triangle relative strength breakout late last year suggests theemergence of a new leadership sector. However, the recent sharp decline in relativestrength during the summer is now testing the bottom of its triangle pattern.

The ability to clear above 460-480 is technicallysignificant as this action clears remaining overheadresistance and confirms new record highs/

5-year triangle pattern relative strength breakout hints of anew leadership group. However, it needs to maintain thebottom of its triangle breakout to reaffirm relative strength.

Strong selling near its 2008highs at 225 signals a pullbackto key support at 196-203.

Breakdown last year of key support still suggests relativeunderperformance against SPX, longer term. Needs to clearabove breakdown and 2008 downtrend to improve.

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S&P 500 Sectors – Healthcare and TechnologyAlthough S&P Healthcare has exceeded its technical target of 615-620 it refuses toconsolidate its gains by continuing to set new record highs. A positive outsideweek (9/19/14) continues to support the strong buying. Key initial supports nowmoves up to the Aug 2014 breakout and the 10-week ma at 722-725. The Jan2013 uptrend and the 30-week ma at 696-702 provides key secondary support.

Relative strength has also trended higher and is challenging its 2001/2002/2009highs. Repeated failures to break out here cab trigger a correction. However, aconvincing breakout here reaffirms longer term relative strength an.

S&P Technology continues to attract investors after clearing above its 38.2-50%retracement (483/580) from the 2000-2002 decline. Next target is the 61.8%retracement (676) and then the 76.4% retracement (795.51). An overboughtcondition can lead to a consolidation to initial support at 630-640 and then to 605-610. Key intermediate support reside near the bottom of uptrend channel (550).

Relative strength has stabilized after declining from its 2012 high. This recoverysuggests investors continue to favor this economically sensitive sector. .Nonetheless, a breakout above bottom of channel is needed to signal leadership.

A retest of 676 or to the 61.8% retracement from2000-2002 decline is imminent.

The battle between new and old technology nameshave created a mixed relative strength reading.However, an impending breakout above the extensionof the 2009 channel helps to reaffirm Tech leadership.

Despite an overbought condition for the past 2years the S&P Healthcare sector continues to trendhigher in a very steep uptrend. Nonetheless, theability to maintain is 2013 uptrend as well as 10-week/30-week moving averages can extend rally to780 or higher.

A breakout above the top of a major 13-year ascendingtriangle would reaffirm market leadership.

S&P 500 Sectors – Materials and Consumer DiscretionaryA symmetrical triangle breakout (238) renders a target to 420 for the S&P Materials.In addition, a successful test of key support along the 30-wk ma (307.14) and asubsequent breakout above its May 2008 high (289.01) confirms higher prices.Despite the strength in the US Dollar, this commodities sector continues to set highs.

The relative strength continues to improve as evident by the breakout of its 2012downtrend. Next key challenge is a retest of the top of the 6-year downtrend.

S&P Consumer Discretionary achieved our technical target of 520-525. In fact, itovershot to 540.21 during Jul 2014 creating an overbought condition. Althoughthe longer trend is favorable a violation of its Nov 2012 uptrend channel (515)earlier in the year now suggests a trading range between 505 and 555.

The relative strength trends from 2008 and from 2010 have reversed directionearlier in the year signaling the end to the outperformance cycle of this cyclicalsector, at least from a near to intermediate term technical perspective.

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Violation of its steep 1-plus year uptrend channelsuggests a new range between 505 and 555.

Relative strength has weakened as evident by theviolations of the two key uptrends including the2008 uptrend and the 2010 uptrend. A neutraltrading range trend is now likely.

A 5-plus year Symmetrical Triangle breakout as well as 2subsequent breakouts above prior highs are bullish.

2012 downtrend breakout reaffirms the start ofrecovery to the pivotal 2008 downtrend.

21

% of S&P 500 Stocks at 52-wk Highs vs S&P Stocks 52-wk LowsThe % of S&P 500 Stocks at 52-wk highs indicator (7.46%) continues to tradebelow its Jun 2013 highs (41%) and recently touched its 3 year lows near 0.53 ornear its 1-standard deviation. Despite SPX setting new price highs, a series oflower highs since Jun 2013 hints of narrowing market breadth (maturing rally).

The S&P 500 stocks at 52-wk Highs minus Lows (34) has recently recovered from itsextreme lows associated with the its 2013-2014 lows. An oversold condition, hasprompted a technical rally that still need to clear the top of the May 2013downtrend. In the meantime, a trading range scenario suggests -3.19 and 72.

% of S&P 500 Stocks above 200-day Moving Avg. and SPX/VIXThe % of S&P 500 Stocks trading above its 200-day moving average (68.15%) hasfallen in sympathy with the recent 4.35% correction. However, it still retains its Jun2012 uptrend. This hints of investors favoring the safety/liquidity of the largercap/mega cap stocks at the expense of illiquid, high beta, and smaller cap names.

The tight 2-year trading range between 11.05-11.69 and 21.34-17.77 for SPXVolatility Index still remains intact. Trading convincingly below 11.05-11.69confirms a major breakdown and renders a retest of the historical lows of 9.88-10.06 and then 8.89-9.39 possibly resulting in a melt up scenario for SPX Index.However, a breakout above 21.34 can lead to higher volatility (mid-to-high 20s).

22

% of NYSE Composite and DJIA stocks > 200-day Moving Avg.The US listed market as represented by % of NYSE Composite stocks above the200-day ma (58.58) remains in its Feb 2013 downtrend channel between the low-50s and the low-60s. The recent ability to bounce off of the bottom of thischannel may ignite a rally towards the top of the channel along the low-60s.

DJIA appears to be benefiting from its mega cap exposure as it maintains above its2011/2012 uptrend. Nonetheless, there remains formidable resistance along thelow 90s or along the top of its 3-year trading range. Key supports coincide withthe bottom of the 2011/2012uptrend channel around the high 60s/low 60s.

23

% of S&P 100 and NASDAQ 100 stocks > 200-day Moving Avg.Although % of S&P 100 Stocks trading above its 200-day ma (79.70%) has alsofallen from its May 2013 highs it still retains its 2-year uptrend channel suggestinga leadership market. We are also impressed by the ability of OEX to bounce off ofits key uptrend channel as well as the extension of the 2013 downtrend breakout.This action further confirms strong investment interests in US mega cap stocks.

The NASDAQ 100 Index is another mega cap US market that is emerging as aleadership index. This large cap OTC index has successfully tested its Dec 2011uptrend. A subsequent Oct 2014 downtrend breakout further reaffirms strengthand suggests a sustained rally to retest the top of its uptrend channel. On theother hand, failure to maintain its 2011 uptrend warns of the next major decline.

24

% of Mid-Cap and Small-Cap stocks > 200-day Moving Avg.After leading the marketplace for many years the Mid-cap market has peakedduring summer 2013. A series of lower higher/lower lows depict technicalweakness. Nonetheless, an oversold condition coupled with a successful test oftrendline and 1-std deviation (48.42) can trigger a technical bounce to the mid-60s.

The violation of its key 2011 uptrend (red arrow) in Oct/Nov 2013 warn ofunderperformance in S&P Small Cap. Since then the % of S&P 600 stocks above200-day ma (44%) has weakened further falling below its 2012 lows. However, asuccessful test of support (38%) can lead to technical oversold rally to low-50%.

25

26

Global Markets/QE Programs/9-inning Baseball Game Analogy

3rd Inning

5th Inning European Equities – MSCI EMU IndexECB LTRO program – Long Term Refinancing Operation 2-stage program – stage 1 (12/21/11) and stage 2 (2/28/12)

Start of the Game (recovery) – (3/09)

Emerging Markets Equities - MSCI Emerging Markets Index

Japanese Equities - Nikkei 225 IndexBank of Japan – Kuroda and Prime Minister Abe Asset Purchase program – 4/13

US Equities - SPX IndexTARP - Troubled Asset Relief Program (10/08), QE1 (11/08), QE2 (11/10), Operation Twist (9/11), QE3 (9/12 and 1/13) , QE3 Tapering announced (12/13), end of QE3 tapering??? (10/14)

End of the Game – Bottom of the 9th Inning – (???)

8th Inning?

1st – 2nd Inning

1st Inning Frontier Markets Equities - MSCI Frontier Markets 100 Index

27

US Economic/Business Cycle, Sector Rotation & Duration

Early Expansion

Middle Expansion

Late Expansion

Early Contraction

Late Contraction

Transportation

Technology

Services

Capital Goods Industrials

Basic Materials

Energy

Consumer Staples

Utilities

Financials

Consumer Cyclicals

Early Expansion – 12 to 18 months

Inflation = Continues to fall

Interest Rates = Bottoming out

Middle Expansion –12 to 18 months

Inflation = Bottoming out

Interest Rates = Rising modestly

Late Expansion – 12 to 18 months

Inflation = Rising

Interest Rates = Rising rapidly

Early Contraction – 6 to 9 months

Inflation = Rising less strongly

Interest Rates = Peaking

Deep Contraction – 6 to 9 months

Inflation = Flat to Declining

Interest Rates = Falling

1 complete cycle – 48 to 72 months

or 4 to 6 yearsMarch 2009 2015-2016?2014

Healthcare

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Contact Information

UBS Financial ServicesWealth Management ResearchNY, NY 10019www.ubs.com

Peter LeeUBS Financial Services Inc.peter.lee@ubs.com212-713-8888 Ext 01