EUR 231.76 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

• We are starting to see signs of deteriorating breadth. For instance, in our best versus worst portfolios on the next page, the number of Groups in each portfolio is the same. This has been positioned toward the bullish side for quite some time . . . . a change.

• Interest-sensitive areas such as Utilities and REITs are hanging in there and not deteriorating like we would typically expect in a “rising” interest rate environment. This means that interest rates increases will be slow and gradual.

• Several Restaurant Groups have achieved 3-month relative strength highs. This requires further investigation.

• Utilities Sector has the best RSR value and trend at the moment due to slowing interest-rate hike assumptions, increased market volatility, and sector rotation. We upgraded the Sector to a tactical market weight two weeks ago.

• Two of our most reliable breadth indicators are showing signs of deterioration: the number of Groups in confirmed and well-defined uptrends, and the number of Group above a rising and falling 200-day moving averages. This is likely the result of sector rotation and an increasing preference toward the international and emerging markets. Currencies are the likely catalyst as the U.S. dollar is declining, while emerging market currencies, in particular, are showing bottoms and moving topside.

• The Homebuilders are very attractive as interest rate hikes appears to be more gradual and the economy is firming with hopes of strengthening further. Better employment trends are also buoying this.

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