Vermilion Macro Vision: Sector Synopsis
STRATEGYThroughout 2023 we have discussed how we anticipate the market indexes to consolidate within broad horizontal trading ranges, and we expect these trading ranges to continue for months, and quite possibly for the entirety of 2023 as the Fed tries to tame inflation. We continue to see the top-end of the range at 4165-4200 on the S&P 500, with the bottom-end at the 2022 lows (3490), or possibly the December 2022 lows (3765). Our gameplan remains unchanged; reduce risk near resistance (where we are now) and add risk near support. Therefore, we continue to recommend a tactical overweight to defensives (Consumer Staples, Utilities, Health Care, and gold miners).
Additional market dynamics supporting our belief that upside is limited include: (1) the Dow and Nasdaq Composite remain below major 1-year resistances of 34,280 and 12,300, (2) high yield spreads remain elevated, (3) RS is reversing higher after holding at support for defensive Sectors including Consumer Staples (XLP), Utilities (RYU), and Health Care (XLV), (4) banks (KRE, KBE) remain weak and show no signs of bottoming, (5) breadth remains weak, and (6) small-caps are trading at 3-year RS lows.
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.
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