EUR 45.86 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

In last week's 3/04/25 Compass, we discussed our expectation for near-term downside as the
S&P 500 and Nasdaq 100 (QQQ) displayed several bearish short-term developments.
The downward pressure has taken out many of the support levels that we outlined,
including the bottom of the range at both 5770-5850 and 5600-5670. However a failure to
recover above thses levels in the next few days would suggest the markets (S&P 500 and
the Nasdaq) have made a top. As we outlined last week, we would need the 5600 level to
hold in order to remain constructive. (See S&P 500 below)
• Market Dynamics are Becoming More Worrisome. Market dynamics since last week
have shown a significant change. One Sector that is showing significant signs of detrioration is the Financial Sector, which has come under intense pressure. (1) high yield
spreads are creeping up off the lows and hit a new post market top high (see page 4) . (2)
the U.S. dollar (DXY) and (3) 10-Year Treasury Yield have formed intermediate-term tops
(and we are targeting $100-$101 on the DXY and 3.6%-3.8% on the 10-year yield), (4)
defensive Sectors including Staples (XLP), Utilities (XLU) and Health Care (XLV) continue
to reflect strong RS. However, we do have concerns within the Healthcare Sector due
to legislative changes that may occur under the current administration. (5) cyclical/
growth Sectors (Communications, and Services) are generally outperforming, Financials
are coming under pressure. and (6) Europe (EURO STOXX 50) is showing signs of a
near-term top with support at 5778, RS remains strong vs the S&P 500. Our main concern
at this point is that if financials do break down, there is a significant amount of Market Cap
in this Sector and not enough room in the other performing Sectors to rotate into