EUR 44.11 For Business Accounts Only

Vermilion Int'l Compass: Global Equity Strategy

STRATEGY

Our view, since the publication of our 5/30/23 ETF Pathfinder, has been that we cannot be bearish unless a key support level breaks (at the time, that was 4050 on the S&P 500). The S&P 500 is now above 4300-4325 -- a level that, in January this year, we had anticipated would cap upside for 2023. It is increasingly likely that 4300-4325 will act as major support moving forward, and we are bullish as long as the S&P 500 is above 4300; we initially discussed this in our 7/3/23 ETF Pathfinder, and reiterated this in our July 18, 2023 Compass. We will need to see a break below 4300 in order to shift to a more defensive posture.

We also discussed on July 18 that 1+ year breakouts were likely coming for the equal-weighted S&P 500 (RSP), Dow, and Russell 2000 (IWM). The Dow decisively broke above 34,280 later that day, while the RSP also broke above $153. As long as $190 support holds on the IWM, we expect a major breakout above $199.

Additional market dynamics supporting our bullish outlook include: (1) breadth across all major broad market indexes continues to improve, (2) the U.S. dollar (DXY) remains in an 8-month downtrend, (3) the 10-year Treasury yield is below 4.1%, (4) high yield spreads are at 1+ year narrows, (5) defensive Sectors including Consumer Staples (XLP), Utilities (XLU), and Health Care (XLV) remain in multi-month RS downtrends, and they all hit 1+ year RS lows just last week, (6) banks (KRE, KBE) appear to have bottomed, (7) small-caps are holding above 3.5-year RS support, and (8) non-U.S. equities remain bullish from a price perspective.

We are also upgrading Energy to market weight due to the bullish 8-month RS downtrend reversal on the equal-weighted Sector (RSPG), which comes alongside bullish 1-year downtrend reversals on WTI crude oil and the Bloomberg Commodity index (DJP). Add exposure.