Vermilion Int'l Compass: Global Equity Strategy
MSCI ACWI With Bullish YTD Downtrend Reversal, More Evidence Suggesting the Lows are InIn our previous Int'l Compass (Nov. 17) we upgraded our global equity outlook to neutral due to a combination of factors, including bullish YTD downtrend reversals on the MSCI ACWI ex-US (ACWX-US) and EAFE (EFA-US) indexes, and uptrend violations on the US dollar (DXY) and 10-year Treasury yield. A continued melt-up is not out of the question, and now the MSCI ACWI (ACWI-US) is reversing topside its YTD downtrend. Investors could continue riding the 1.5-month MSCI ACWI (ACWI-US) uptrend until it breaks, or, considering that we expect rangebound price action in the months ahead, getting more defensive and/or reducing exposure into strength following this significant rally is another viable strategy.
Indexes Extended & Testing Major Resistance Levels. The MSCI ACWI (ACWI-US), S&P 500, and Russell 2000 are testing resistance at their YTD downtrends (possible reversal for ACWI). MSCI EAFE (EFA-US) is testing resistance at $67. The EURO STOXX 50 is testing resistance at 4000-4030. The DAX remains below 14815-14950 resistance. The FTSE 100 is approaching resistance at 7650-7700. And the list goes on. As a result, we believe upside is limited from here and there is a strong potential for pullbacks as the indexes likely establish new horizontal ranges... see chart below and page 2.
Emerging Markets Improving. In our Nov. 17 Int'l Compass we noted how Taiwan's TAIEX and Korea's KOSPI were reversing topside their YTD downtrends, while Hong Kong's Hang Seng and China's CSI 300 were reversing topside their 4.5-month downtrends. Strength within emerging markets has continued with MSCI EM (EEM-US) breaking above $38 and the Hang Seng breaking above 18,235 resistance. We continue to view this as a positive as it increases the odds that the bear market lows have already been established, but it is hard for us to make new buys with many indexes now getting extended. We prefer to add exposure on a pullback... see page 3.
Actionable Theme: Defensives. With indexes extended following this rally, we believe it is time to start rotating into more defensive areas of the market. Sectors highlighted include Consumer Staples and Health Care... see pages 4-9.
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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