This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Upgrading Financial To Overweight, Downgrading Technology & Consumer Discretionary

The recent rate surge has upset the picture for growth stocks and, consequently, the S&P 500 is going through a consolidation phase. While we cannot say precisely how deep this pullback will be or if the lows are already in, ongoing positive market dynamics tell us the pullback is likely to be contained and therefore should be viewed as a buying opportunity. With that said, a break below 3789 would signal additional downside ahead.

  • S&P 500. As noted in last week’s Compass, a break of 3870 on the S&P 500 signaled a loss of upside momentum and a false breakout, meaning additional downside was likely. Thus far, the downside has been short-lived, with the S&P 500 quickly reclaiming the 3870 level while forming a bull flag pattern. The bull flag breakout level of 3915-3925 is current resistance to watch; a break above this level would likely mean a test of the all-time highs and beyond. For this to happen we need 3860 short-term support to hold; if this level fails to hold, the next important support comes in at 3789-3805 and the 50-day moving average, followed by 3694, 3635, 3588, and 3550… see chart below.
  • Treasury Yields, Value vs. Growth. In the near-term we are watching 2.4% on the 30-year Treasury yield and 1.61% on the 10-year yield. We need to see some stabilization in interest rates, ideally below these levels, in order for growth stocks and the major averages to find some support. It is possible that this stabilization started on Friday of last week. Additionally, large-cap value appears to be overtaking growth as leadership as evidenced by the Russell 1000 value vs. growth ratio… see chart below

Chart Source: Factset

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 Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight 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 permission from Vermilion Research . The views expressed in this material are solely those of the author and/or Vermilion Research and IBKR 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 sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. 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.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

trading top