EUR 43.52 For Business Accounts Only

Vital Signs: U.S. Equity Strategy Update

In today's report we examine the state of the U.S. equity market, and highlight recent changes that have may give rise to further short-term weakness.

Key Points:

• The S&P 500 is retesting its 200-day moving average, which would normally be viewed as a pullback to logical support.

• However, the internals of the market have weakened recently, as breadth has deteriorated, based on the % of stocks above their respective 200-day moving average.

• We believe the market is therefore susceptible to taking out its February lows, which would be 2,550 on the S&P 500.

• Groups associated with long-term financing (Housing, automobiles and component suppliers, truck manufacturers) have fared the worst since the start of the early February decline. We would like to see stabilization in those areas before regaining a more optimistic outlook.

• Gold is on our radar as a major base has formed, and the continued weakening of the U.S. dollar may drive the metal higher. We are waiting for confirmation of a break above the 130 level in GLD and reversals in RS on the equities before committing to an entry.

• Energy commodities are perking up with the rally in crude. Energy equities have diverged from the commodity and until we see confirmation we would recommend sitting on the sidelines or incrementally buying on weakness rather than strength.