EUR 85.33 For Business Accounts Only

Vermilion Macro Vision: Sector Synopsis

Market dynamics are almost exclusively bearish and our key “lines in the sand” on the major indexes are being violated amid the escalating Russia/Ukraine war. This includes 4257 on the S&P 500, $334 on the Nasdaq 100 (QQQ), and 33,250 on the Dow Jones Industrial Average, while the Russell 2000 (IWM) has been below the important $209 level since mid-January. As long as prices are below the aforementioned levels, we are bearish and expect more volatility and lower prices ahead. The head-and-shoulders pattern breakdown on the S&P 500 implies a measured move price target of 3695; whether it hits this level or lower is anyone's guess, though it does provide us with a potential roadmap of where the market could be headed.

We are watching for the following developments in order to give us confidence that the bottom is in: (1) We would like to see a washout in the form of a 90%+ downside volume day (or back-to-back 80%+ downside volume days), followed by a bullish breadth thrust in the form of a 90%+ upside volume day (or back-to-back 80%+ upside volume days). (2) Bullish price inflections on the major indexes. (3) An RS uptrend violation for Consumer Staples. Absent these requirements, we expect the market to get worse before it gets better.

We are making several Sector weighting changes, including upgrading Consumer Staples, Utilities, and Materials to overweight, while simultaneously downgrading Technology and Financials to market weight, and downgrading Consumer Discretionary to underweight.

While we wait for the broad market to bottom, there are several attractive areas in this market where we recommend hiding out. Our favorite areas of the market include Energy (E&P, oil services, coal), Materials (agricultural chemicals and metals/mining including steel, gold, silver, aluminum, copper, uranium, etc.), Manufacturing (aerospace/defense), Transportation (shipping), Consumer Staples, Utilities, and Health Care (pharmaceuticals, hospitals, and HMOs)