Vermilion Macro Vision: Sector Synopsis
STRATEGYSince late-February 2024 we have discussed gap support from 2/22/24 at 4983-5050 as a critical support level on the S&P 500. So far, that is precisely where this pullback ended. We discussed our expectations that further downside was limited (4/23/24 Compass), pointing to the mounting evidence that suggested the lows were in for this pullback (4/30/24 Compass). Considering market dynamics remain largely bullish and have only improved, we continue to view the latest pullback to the 100-day MA on the S&P 500 as healthy and normal within the ongoing bull market, and our bullish outlook (since early-November 2023) remains intact.
Aside from the S&P 500's pullback halting after filling the 2/22/24 gap, additional market dynamics which support our bullish outlook include: (1) The S&P 500 gapped-up to reverse its 1-month downtrend on 5/3/24; that gap remains unfilled which signals upside power. (2) Treasury yields and (3) the U.S. dollar (DXY) remain below important resistances from October/November 2023. (4) Bond market volatility (MOVE index) is at 2-year lows. (5) High yield spreads are back at 2+ year narrows and are well-below the critical 430bps level. (6) Commodities remain below critical resistances -- $95 on WTI crude oil, $74.60 on gasoline (UGA), and $33.20 on the Bloomberg Commodity index (DJP) – and WTI crude oil and gasoline prices appear to be putting-in a local top, at minimum. (7) Defensive Sectors including Consumer Staples (XLP) and Health Care (XLV) remain below their October 2023 RS lows, while Energy (XLE) is violating its multi-month RS uptrend (Energy acts as the top defensive Sector during inflationary periods). (8) Semiconductors (SMH, SOXX) and biotechnology (XBI) are breaking above their 2-month downtrends, while semiconductors remain long-term leadership. (9) There continues to be virtually zero bearish price patterns across all Sectors/industries. (10) Breadth remains healthy. (11) Gold is breaking out to all-time highs above multi-year resistance at $2088-2090. And (12) major non-U.S. equity indexes (MSCI ACWI, ACWI ex-US, EAFE, and Emerging Markets) are hitting multi-year highs following bullish inflections in October/November 2023. These significant risk-on signals are all reasons that we remain bullish on U.S. equities.
On the following pages we summarize the basis for our bullish 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.
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