Vermilion Compass: Weekly Equity Strategy
Russell 2000 Still Testing $209 ResistanceThe S&P 500 and Nasdaq 100 (QQQ) have continued their impressive 2-week rally, fueled largely by a select few mega-cap growth names (AAPL, AMZN, TSLA, NVDA). On the other hand, the Russell 2000 (IWM) small-caps remain below critical resistance at $209, have not participated in the rally and have started underperforming again. While this bifurcation can continue, this is not the type of breadth that supports a sustainable new bull market. We need to see the IWM break above $209 in order to have confidence that the bottom is in.
Russell 2000, S&P 500. As we noted last week, $209 on the Russell 2000 (IWM) is arguably the most significant resistance level of all right now, and we would like the see a break above $209 in order to have a sustainable new bull market. On the other hand, the S&P 500 and large-cap growth have been shot out of a cannon following the bullish downtrend reversals, suggesting there is a high probability that the lows for this correction have already been established on the day of Russia's invasion of Ukraine (Feb. 24th). 4590-4600 is a significant resistance level on the S&P 500 we are watching; if bears fail to show up there, next up would likely be a test of all-time highs... charts below.
Positives. Last week we noted there were some encouraging signs suggesting the broad market is attempting to bottom, including high yield spreads breaking below the 2-month uptrend and short-term RS uptrend violations for Consumer Staples (XLP, RHS). We are seeing more encouraging signs, including a reversal in the cap-weighted Consumer Discretionary vs. Staples ratio (XLY vs. XLP) and bitcoin breaking above $45,500... see page 4.
Concerns. Last week we noted some concerns, including the 10/2's Treasury yield spread heading toward inversion and banks (KBW Bank index) topping. Additional concerns include bearish technicals for emerging markets (EEM, EMXC) and non-US equities (ACWX), Utilities (XLU) with bullish price and RS trends, the US dollar (DXY) near new highs, and an intact downtrend on the equal-weighted Consumer Discretionary vs. Staples ratio (RCD vs. RHS)... see pages 4-7.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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