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Vermilion ETF Pathfinder: Actionable ETF research & Ideas

Market at key inflection point, still vulnerable

We remain cautious with an overall neutral outlook as indicators continue to send mixed signals. By and large, new developments have been negative, but many areas we often look to in order to gauge risk sentiment - which also give us clues to where the market is likely headed next - are testing important support levels.

• Negative developments. Several negative developments support our belief that the market may be poised for further weakness, including: breakdowns in EM (EEM), EAFE (EFA), and the cyclicals vs. staples ratio, global autos (CARZ) and Eurozone banks (EUFN) at new lows, and continued downward interest rate volatility... see charts below and page 2.

• Defensives near YTD RS highs. RS for defensives (Utilities, Real Estate, Staples) are testing key resistance; new RS highs would be problematic for the broad market... see page 3.

• Key areas testing support. Many key areas of the market (e.g., banks/financials, transports, small-caps, industrials, ACWI) are testing important support levels yet again, suggesting the potential for a near-term bounce for the broad market. Note that a failure to hold support at current levels would likely usher in another leg lower for the broad market... see page 4.

• Actionable Industry ETFs: TAN, IPAY, XAR, and SIL... see page 11.

• EM and Int'l: Developed (EFA) and EM (EEM, VWO) ETFs are breaking below key support levels, a concerning development for foreign and U.S. equity markets. Underweight both the EFA and EEM relative to ACWI... see page 12.

• Actionable Int'l ETFs: ENZL, EWN, EWC, and ERUS... see page 13.