Vermilion Compass: Weekly Equity Strategy
Downgrading Consumer Staples to UnderweightWe remain bullish since our 4/22/25 Compass, and we will maintain our bullish outlook as long as market dynamics remain healthy and the S&P 500 (SPX) is above 6028-6059. Shorter-term, the SPX violated its 3.5-month uptrend yesterday, but managed to rally back to the breakdown level by yesterday's close. We would not yet call this a decisive breakdown, and we are on the lookout for a potential reclaim back above this uptrend at the 6425-3430 level, which would indicate a resumption of the uptrend. With that said, this could also easily be the start of a consolidation period. Short-term supports on SPX include 6400-6410, 6340, 6200, 6100-6150, and 6028-6059.
Downgrading Consumer Staples to Underweight. We are downgrading Staples (XLP) to underweight -- reduce exposure. RS broke to new YTD and 25-year lows on the XLP just last week; new RS lows is very bullish for the broad equity market... see chart below.
Rotations Continue. The same leaders that we have discussed over the past two months continue to lead -- biotechnology (XBI), Bitcoin miners (WGMI), homebuilders (ITB), metals & mining (XME), gold miners (GDX), China (MCHI), retail (XRT), uranium (URA), airlines (JETS), banks (KRE, KBE), cannabis (MSOS), and solar (TAN), among others. Meanwhile, prior leadership areas from the April lows -- semiconductors (SMH, SOXX), Technology (XLK), software (IGV), quantum (QTUM), and ARK (ARKK, ARKX, ARKQ, ARKF, ARKW) -- are simply consolidating. As long as these areas are not breaking down, these rotations are exactly what we would expect to see in a healthy bull market... see page 3.
Market Dynamics Remain Risk-On. The entire list of risk-on market dynamics that we discuss here on a weekly basis remain in place. Today we are focusing on a select number of pertinent areas. (1) Semiconductors (SMH) are holding above crucial support at $280. (2) The 10-year Treasury yield has not been able to break above 4.50%, let alone the major 4.70%-4.80% resistance level -- but ticking higher recently. (3) Interest rate volatility (MOVE index) is near 3.5-year lows -- but ticking higher recently. (4) Small-caps (IWM) are bullish and are outperforming. (5) The DJI and mid-caps (IJH) are holding above crucial base supports. This risk-on list is overpowering; stay bullish... see pages 3-5.
Amphenol is a designer, manufacturer and marketer of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed cable. The company's segments are: Interconnect Products and Assemblies, which designs, manufactures and markets a range of connector and connector systems, and other products, including antennas and sensors, used in a range of applications in a set of end markets; and Cable Products and Solutions, which designs, manufactures and markets cable, products and components for use primarily in the broadband communications and information technology markets as well as certain applications in other markets.
NetApp is the data authority for the hybrid cloud. The company's product, services and solutions portfolio include: cloud data services, which include the NetApp Data Fabric, which manages, secures, and protects the data of its customers from on-premises to public to hybrid cloud; cloud infrastructure, which helps customers build cloud-architected data centers; storage systems and software, which enables customers to modernize their IT architectures with cloud-connected flash to free the resources necessary; and support services, which enable a portfolio of technical services including independent support services, support account managers, residency services, and managed services.
Pure Storage is engaged in developing data platform. The company's data platform replaces storage systems designed for mechanical disk with all-flash systems for solid-state memory. The company's Pure1 cloud-based support and management platform simplifies storage administration, while real-time scanning enables it to find and fix issues. The company's business model replaces the forklift upgrade cycle with an Evergreen Storage subscription model. The company's offerings include its FlashArray and FlashBlade products, inclusive of its Purity Operating Environment software, FlashStack and Artificial Intelligence Ready Infrastructure (AIRI), Cloud Data Services, FlashArray//X, and AIRI Mini.
Western Digital is a developer, manufacturer, and provider of data storage devices and solutions. The company's portfolio of technology and products address the following markets: Client Devices, which consist of hard disk drives (HDDs) and solid state drives (SSDs) for computing devices, flash-based embedded storage products, and flash-based memory wafers and components; Data Center Devices and Solutions, which consist of enterprise HDDs and enterprise SSDs, data center software and system solutions; and Client Solutions, which consist of HDDs and SSDs embedded into external storage products and removable flash-based products, such as cards, universal serial bus flash drives and wireless drives.
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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