Risk-on signals remain the dominant theme. As a result, we continue to believe we are close to exiting the “mixed market environment” in favor of a new, broad-based advance.
- More and More Cyclical Areas Breaking Out. In our September 28 Compass, we noted that small-caps (IWM) and cyclicals (XOP, XLF, RCD, XLI) were still consolidating, and that we need to see breakouts to new YTD highs in order to signal the end of the “mixed environment,” and the start of a new, broad-based advance. Since that report, we have been gradually shifting to a more bullish outlook as Energy (XOP) and then Financials (XLF) broke out to new highs. We now have another breakout, this time from equal-weighted Consumer Discretionary (RCD), giving us more confidence that we are entering a new broad-based advance. That leaves small-caps (IWM) and Industrials (XLI) as the last two key areas that we would like to see break out to YTD highs, and we believe it will happen soon. Furthermore, the S&P 400 Mid-Caps (IJH) are breaking out to new highs, and we expect small-caps to follow… see charts below
- Defensives Underperforming. Several defensive areas are hitting new RS lows; this is a bullish sign for the broad market as it signals strong risk appetites. Specifically, Consumer Staples (XLP), Utilities (XLU), pharmaceuticals (PPH), and telecom (IYZ) are all hitting new RS lows or remain in RS downtrends
Disclosure: Vermilion Research
The information contained herein is privileged, confidential and protected from disclosure. Any unauthorized disclosure distribution, dissemination or copying of this material or any attachment is strictly prohibited; such information, whether derived from Vermilion Vermilion Capital Management, LLC or from any oral or written communication by way of opinion, advice, or otherwise with a principal of the company is not warranted in any manner whatsoever, is for the use of our customers only and may be obtained from internal and external research sources considered to be reliable. It is not necessarily complete and its accuracy is not guaranteed by Vermilion Capital Management, LLC, its operating entity or the principals therein. Neither the information nor any opinion expressed constitutes a solicitation for the purchase of any future or security referred to in Vermilion research publications. Principals of Vermilion Capital Management, LLC may or may not hold, or be short of, securities discussed herein, or of any other securities, at any time. The foregoing also expressly applies to any trial subscription.
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Vermilion Research and is being posted with its permission. The views expressed in this material are solely those of the author and/or Vermilion Research and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.