UBS: It's the beginning of the end of the bull market

It's looking more and more like the top to UBS strategist Julian Emanuel.

In a notes to clients on Friday, Emanuel wrote:

Signs are accumulating that, after 6 1/2 years and price gains of more than 200%, the Bull Market has entered into the "Late Innings." M&A activity - as revenue growth stays challenged - has been feverish, and the announcement of talks between Pfizer (PFE) and Allergan (AGN) is reminiscent of deals such as AOL/Time Warner in 2000 and RBS/ABN-AMRO in 2007, blockbusters in market leading sectors which were followed by major market tops.

Emanuel makes it clear, though, that this is not yet the peak for stocks.

And although this is one of the longest bull runs since FDR was president in the 1930s, bull markets don't die of old age. But there are a few things signaling the top is near.

We've seen a surge in M&A activity that's putting this year on pace to smash records in terms of deal volume. The M&A frenzy usually happens in cycles of three years, and this one began in 2014, Emanuel wrote.

M&A activity also boomed in the years leading up to 2000 and 2007, coinciding with the last two big stock market tops.

Stock market volatility has also started to pick up again.

Emanuel says it's no surprise, given recent concerns about China's economy, the Fed's ability to raise rates, all coming alongside soft revenue and earnings growth from the biggest companies in the US.

"While common wisdom has it that higher volatility necessarily signals a discrete end to the [bull market], it is often the case that higher vol is a natural occurrence in the 'late innings' of extended rallies, particularly when the Fed is raising rates, as was the case in late 1999-2000," he wrote.

Emanuel also observed that NYSE members' margin debt, or the borrowed amounts used to trade, has peaked.

This also happened in 2000 and 2007.

Emanuel again:

The weight of the accumulated evidence by no means signals an imminent end to the Bull, but with the start of the "late innings" investors should be cognizant of the appearance of additional "caution flags" and begin to shift behavior to a more selective market opportunities orientation, in our view.

Earlier this month, Emanuel cut his target for the S&P 500 earlier this month, to 2,125 from 2,225.

The index closed at 2,085 on Thursday.