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Vermilion ETF Pathfinder: Actionable ETF research & Ideas

Still Searching For A Bottom

In our last ETF Pathfinder (3/9/20) we noted key support levels on the Nasdaq Composite (8,264), S&P 500 (2,830-2,855), and Dow Jones (24,681) which represented our new lines in the sand. We said we would be constructive as long as these levels held, but that we would reduce exposure on breakdowns as that would likely usher-in additional downside. Breakdowns and additional downside is what we got, and these indexes are now 17-22% lower. That leaves equities still searching for a bottom.

· What We Are Watching For. The trend remains down and we have yet to make the elusive “initial low.” In addition to bullish short-term reversals in the major averages, we are also watching for high yield spreads to narrow and for WTI crude oil to find a bottom, and these two things are not unrelated considering the significant energy representation within high yield. We are also watching oversold indicators such as the % of S&P 500 stocks above their 200-day MAs. The current reading of 3% signals extreme oversold conditions, however it will not be until this indicator thrusts above 15-20% that it will give off a buy signal..

· Upgrading Staples To Overweight; Downgrading Discretionary To Underweight. We are upgrading Staples (XLP, RHS) to overweight due to bullish RS inflections and we are downgrading Discretionary (XLY) to underweight due to RS breaking below support.