EUR 46.72 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

U.S. Dollar (DXY) Rolling Over

Large-cap indexes (S&P 500, Nasdaq 100, and DJI) remain bullish, all hitting new all-time highs last week while continuing to find short-term support at their respective 20-day MAs. Mid-caps (S&P 400, Russell Mid-Cap) are starting another leg higher following breakouts from 2-month consolidations. Small-caps (S&P 600, Russell 2000) are likely to follow in the footsteps of large- and mid-caps, and are likely to break out from their 2.5-month consolidations/high bases. The fact that small-cap indexes have simply been consolidating for 2.5 months following the historic rally from late-October to late-December 2023, is a healthy sign, and they could be gearing-up for another similar move higher. We also continue to see signs of the U.S. dollar (DXY) rolling over, and some early signs of weakness in 10- and 30-year Treasury yields as well; a continued move lower in the DXY and yields should allow equities to move higher. Our bullish outlook (since early November 2023) remains intact.

U.S. Dollar (DXY), 10- and 30-Yr Treasury Yields. In last week's Compass (2/24/24) we discussed how the U.S. dollar (DXY) appeared to be staging a false breakout at the important $104.60-$104.70 level, which is a bearish development for the DXY. The DXY is now violating its YTD uptrend and breaking below the important $103.80 short-term support level. The whole YTD rally in the DXY could now be viewed as a bear flag breakdown, implying another trip to $101, and likely lower ($99). Additionally, the 10- and 30-year Treasury yields show early signs of rolling over at major resistances of 4.35% and 4.50%. If the DXY moves toward $101 and $99 as we expect, and long-term Treasury yields roll over, it will be a huge risk-on signal for U.S. and global equities... see chart below and page 3.
S&P 500. The S&P 500 created a breakaway gap last Thursday (2/22) following NVDA's earnings; as long as this gap remains unfilled (from 5040 to 4983), it signals upside power in favor of the bulls. We expect 5040 to be a strong support level.
More Bullish Dynamics. The equal-weighted Discretionary vs. Staples ratio just hit new 2+ year highs. Micro-Caps (IWC) display a bullish 2-year reversal. Discretionary (XLY) and Materials (XLB) display 1-2-year base breakouts. Smid-cap biotechnology (XBI) is hitting 2+ year highs. Defensives (XLP, XLU) continue to underperform. U.S. high yield spreads are at new 2-year narrows. This is all indicative of a strong bull market..