Vermilion Macro Vision: Sector Synopsis
STRATEGYSince our January 10th Compass we have discussed how we see the market indexes as consolidating within broad horizontal trading ranges, and we expect these trading ranges to continue for months, and quite possibly for the entirety of 2023. We discussed our view that the top-end of the range would be 4165 (later expanded to 4165-4200) on the S&P 500, with the bottom-end at the 2022 lows (3490). Another possible support level we are monitoring is at the December 2022 lows (3765). We noted and continue to believe that reducing risk near resistance and adding risk near support will be key to outperforming in 2023 (alongside Sector/stock selection).
Important supports broke last week, including 3915-3940 on the S&P 500 (200-day MA and prior downtrend from all of 2022) and 32,500 on the DJIA. With these key support levels breaking, we believe 3765 and likely 3490 will be explored next on the S&P 500.
Additional market dynamics supporting our belief that equity market indexes are headed lower include: (1) high yield spreads reversing topside their 5.5-month downtrend, (2) RS is reversing higher after holding at support for defensive Sectors including Consumer Staples (XLP), Utilities (RYU), and Health Care (XLV), (3) continued breadth deterioration, and (4) significant short-term underperformance from small-caps.
Of course, the Financial Sector and more specifically, banks, continue to be a major issue. In last week's Compass, we remarked on page 2 “Regional banks are especially concerning within Financials, with the KRE ETF breaking below its 200-day MA and prior downtrend from all of 2022. Considering their role in business activity, weakness within banks is never a good sign for the broad equity market.”
At this point we are in wait-and-see mode as we wait for stocks and market indexes to form bases, but we believe they will likely come from lower levels.
On the following pages we summarize the basis for our near-term bearish/intermediate-term neutral outlook
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.