Vermilion Compass: Weekly Equity Strategy
Coasting as We Stalk for Buying Opportunity; Downgrading Discretionary to UnderweightWe had been near-term bullish on the S&P 500 (SPX) since our 4/22/25 Compass, however, we are officially downgrading our near-term outlook to neutral. The SPX, Nasdaq 100 (QQQ), and Russell 2000 (IWM) are breaking below their 50-day MAs and are also violating their multi-month uptrends, signaling a consolidation period is here. With that said, our intermediate-term outlook remains bullish (as of our 5/14/25 Compass), and we will maintain our bullish intermediate-term view as long as market dynamics remain constructive and the SPX is above 6200. Supports to watch on SPX include 6550-6569, 6480-6520, 6450, 6400-6410, 6340-6360, 6290, and 6200. Assuming market dynamics remain constructive, we expect pullbacks to these areas to be buying opportunities. Short-term resistance is at the 20-day MA and 6870.
Deteriorating Market Dynamics. Aside from the aforementioned 50-day MA and multi-month uptrends violations, additional deteriorating market dynamics which support our near-term downgrade to neutral include: (1) Defensive-leaning Sectors including Health Care (XLV) and Utilities (XLU) are starting to outperform and display meaningful recent outperformance. (2) Bitcoin is breaking below long-term support at $98,000 (and we are no longer bullish long-term). (3) WTI crude oil shows some EARLY signs of bottoming, and gasoline prices (UGA) are on the cusp of breaking above their 3.5-year downtrend. (4) The SPX, QQQ, and IWM have been moving sideways to lower during the typically very bullish flows (in years where the market shows strong gains YTD) during the November through January period -- though obviously, there is still time for a Santa Claus rally. These deteriorating dynamics are enough for us to take our foot off the gas near-term... see page 3.
It's Not All Bad. Many market dynamics remain constructive, including: (1) High yield spreads are still near multi-year narrows and remain below 320bps and 355bps (testing 320bps now). (2) The 10-year Treasury yield has not been able to break above 4.20%, let alone 4.70%-4.80%. (3) The U.S. dollar (DXY) remains below $100.25 resistance. (4) Staples (XLP), Health Care (XLV), and Energy (XLE) remain laggards over longer timeframes. (5) U.S. interest rate volatility (MOVE index) is near 4-year lows. (6) Various prior leaders are still leading (e.g., XBI and TAN). (7) Gold and silver remain bullish. These are all risk-on signals that support our bullish intermediate-term outlook, leading us to believe that a short-term pullback should be viewed as a buying opportunity... see page 4.
AbbVie is a research-based biopharmaceutical company. The company's products are focused on treating conditions such as chronic autoimmune diseases in rheumatology, gastroenterology and dermatology; oncology, including blood cancers; virology, including hepatitis C virus and human immunodeficiency virus; neurological disorders, such as Parkinson's disease; metabolic diseases, including thyroid disease and complications associated with cystic fibrosis; pain associated with endometriosis; as well as other serious health conditions. The company also has medicines in clinical development across immunology, oncology and neuroscience, with additional targeted investment in cystic fibrosis and women's health.
Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products. The company's products are sold worldwide, primarily to wholesalers, specialty distributors, retail pharmacies, hospitals, government entities and the medical profession. The company manufactures products in the United States and Puerto Rico and has manufacturing operations in two foreign countries. The company has products in the following therapeutic classes: hematology, oncology, cardiovascular and immunology. The company's pharmaceutical products include chemically-synthesized or small molecule drugs and products produced from biological processes, called biologics.
Eli Lilly and Company discovers, develops, manufactures, and markets products in a single business segment: human pharmaceutical products. The company's human pharmaceutical products include: diabetes and other endocrinology products, immunology products, neuroscience products, oncology products, and other products. The company's diabetes and other endocrinology products include: Baqsimi? and Basaglar?. The company's immunology products include: Olumiant? and Taltz?. The company's neuroscience products include: Cymbalta? and Emgality?. The company's oncology products include: Alimta?, Cyramza?, Erbitux? and Verzenio?. The company's other products include: Cialis?.
Johnson & Johnson is a holding company engaged in the research and development, manufacture and sale of a range of products in the health care field. The company has three business segments: Consumer, which includes a range of products focused on personal healthcare used in the beauty, over-the-counter pharmaceutical, baby care, oral care, women's health and wound care markets; Pharmaceutical, which is focused on six therapeutic areas: immunology, infectious diseases, neuroscience, oncology, cardiovascular and metabolism and pulmonary hypertension; and Medical Devices, which includes products used in the orthopaedic, surgery, interventional solutions, and eye health fields.
Merck & Co. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. The company's segments are: Pharmaceutical, which includes human health pharmaceutical products that consist of therapeutic and preventive agents for the treatment of human disorders, and human health vaccine products that consist of preventive pediatric, adolescent and adult vaccines; and Animal Health, which discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as a suite of digitally connected identification, traceability and monitoring products.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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