EUR 46.92 For Business Accounts Only

Vermilion Int'l Compass: Global Equity Strategy

Pullback Underway

A pullback in global equities is underway following steep uptrend violations on the MSCI ACWI (ACWI-US) and EURO STOXX 50. These two indexes are already 4-5% off their highs, so further downside may be limited. Several 5%-10% pullbacks are to be expected in any given year -- particularly after the historic 5-month rallies -- so we view this as healthy and normal within the ongoing bull market. ACWI-US is currently testing important support at $105; if this area were to break, next major supports are $102 and $99. A pullback to $102 would be 7-8% off the highs, while a test of $99 would be 10% off the highs. As long as $99 holds on ACWI-US, we continue to treat pullbacks as buying opportunities.

One Failed Breakout. Of the 13 major 1+ year breakouts discussed YTD, one is now proving to be a failed breakout -- South Korea's KOSPI. While this is not great to see, it is to be expected amid a pullback, particularly for a laggard country such as South Korea that only recently broke out less than a month ago. If more indexes start to display failed breakouts, it would become a bigger concern. Even Israel's TA-125 index is holding above base support at 1910-1915 (though testing it now). That is impressive considering what Israel is going through with Iran (not to mention Hamas/Palestine)... see page 2.
Downgrading Greece to Market Weight. We are downgrading Greece to market weight with RS flattening-out on the ATHEX Composite. Our other country overweights remain unchanged, and include Japan, Taiwan, and Poland. Price on Europe's EURO STOXX 50 remains in a 5-6-month uptrend, and RS is on the cusp of breaking above 10-month resistance; we are monitoring for a potential upgrade to overweight... see page 2.
Commodities. Rising commodity prices could lead to rising inflation, but we would only start to get concerned if the Bloomberg Commodity index (DJP-US) breaks above $33.20, WTI crude oil breaks above $95, and gasoline (UGA-US) breaks above $74.60-$76. Until then, these commodity prices are simply rangebound and near resistance... see page 3.
Actionable Themes: Consumer Staples, Utilities, Telecomm, Energy, Materials, Technology, and Services. In today's report we discuss our favorite ideas within defensives (Staples, Utilities, and Telecomm), commodity-related (Energy and Materials), and growth (Technology and Services)... see pages 4-16.