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Dave Nicoski ...
  • Ross LaDuke
EUR 46.37 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Still No Decisive Breakout as SPX Tests 5783

The S&P 500 (SPX) remains just below 5783, which is the upper-end of an important target/resistance area we have discussed for over a month (5670-5783). 5670 was the prior all-time high set in July, while 5783 is 2% above 5670. It is hard to call it a "decisive" breakout if the SPX is not even 2% above its prior high, and, importantly, in 2007, the SPX made a top after climbing 1-2% above its prior high. To reiterate, the 2007 topping analog has tracked the current market almost perfectly, not to mention the similar backdrops to today that includes a new Fed cutting cycle, recession indicators going off (Sahm rule and Schannep Recession Indicator), the yield curve un-inverting, and defensive Sectors outperforming. Bull traps or false breakouts are common at major market turning points, which would be confirmed on a break below 5670. Additionally, the list of indexes/Sectors that are not breaking out to new highs remains long (e.g., QQQ, SMH, XLK, IGV, ARKW, VXF, IJH, IJR, IWM, XRT, XBI, PSCH, KBE, and XTN, among others). As long as the SPX does not have a weekly close above 5783 we continue to recommend reducing risk and shifting to defensives, and this is the ideal time to do so as the election nears. And to be clear, we are not calling for some massive bear market like we saw in 2008; we remain neutral on the SPX, preferring to sell near 5783 resistance and buy near 5100-5200 support until there is a break in either direction. This Friday's September employment report will likely give us our answer as to whether the SPX breaks out or pulls back.

Mixed Market Dynamics. We continue to keep an open mind considering market dynamics are still mixed. We go into more detail on the negatives and positives on pages 3-6.
Negatives: 1-, 2-, and 30-year Treasury yields are potentially bottoming at major supports. The U.S. dollar (DXY) remains above major support at $100-$101. Various defensive Sectors continue to outperform, including Utilities (XLU), Real Estate (XLRE), and Telecom (IYZ). WTI crude oil remains below $72-$73 resistance, a sign of weak demand. Various risk barometer ratios such as high beta (SPHB) vs. low volatility (SPLV) and Discretionary (XLY) vs. Staples (XLP) are neutral at best, and could be topping at worst (which would be a major risk-off signal)... see pages 3-5.
Positives: U.S. high yield spreads and bond market volatility (MOVE index) are near 2.5-year lows. A handful of indexes/Sectors are breaking to new highs (SPX, EEM, IPO, XLC, XLY, XLB, and XLI). Select defensive Sectors display mild RS deterioration, including Staples (XLP) and Health Care (XLV)... see page 6.
Underlyings
Accenture Plc Class A

Allegheny Technologies Incorporated

Allegheny Technologies is a manufacturer of specialty materials and components. The company operates in two business segments: High Performance Materials and Components, which produces a range of specialty materials, parts and components for several main end markets, including aerospace and defense, medical, and energy; and Flat Rolled Products, which produces nickel-based alloys, specialty alloys, titanium and titanium-based alloys, and stainless steel in a variety of forms including plate, sheet, engineered strip, and Precision Rolled Strip? products.

Amundi MSCI Emu Small Cap ESG CTB Net Zero Ambition

AVANT BRANDS INC.

Booz Allen Hamilton Holding Corporation Class A

Booz Allen Hamilton Holding is a holding company. The company provides management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber knowledge to U.S. and international governments, corporations, and non-profit organizations. The company's services are: Consulting, which focuses on solving client problems and developing mission-oriented solutions; Analytics, which includes decision analytics, automation, and data science solutions; Digital Solutions, which develops, designs, and implements solutions; Engineering, which delivers engineering services and solutions; and Cyber, which focuses on active prevention, detection, and cost effectiveness.

CACI International Inc Class A

CACI International is a holding company. Through its subsidiaries, the company is a provider of information solutions and services to the United States government. The company's information solutions and services support national security missions and government modernization/transformation for intelligence, defense, and federal civilian customers. The company provides its services and solutions to its domestic customers in the following market areas, among others: business systems, command and control, communications, cyber security, enterprise information technology (IT), health, and intelligence services. The company's international operations provide a mix of IT services and proprietary data and software products.

Carpenter Technology Corporation

Carpenter Technology is a producer and distributor of alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels as well as drilling tools. The company's alloy-based materials and process solutions are used for applications in the aerospace, defense, transportation, energy, medical, industrial and consumer markets as well as additive manufacturing processes and soft magnetics applications. The company also produces metal powders and parts. The company has two business segments: Specialty Alloys Operations, which consists of the company's alloy and stainless steel manufacturing operations; and Performance Engineered Products, which consists of the company's differentiated operations.

CGI Inc. Class A

CGI Group is engaged in managing information technology services, including outsourcing, systems integration and consulting, software licenses and maintenance, as well as business process services to help clients realize their strategies and create added value.

Cognizant Technology Solutions Corporation Class A

Cognizant Technology Solutions is a services company, transforming customers' business, operating and technology models for the digital era. The company's services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Additionally, the company develops, licenses, implements and supports proprietary and third-party software products and platforms. The company has organized its services and solutions into four practice areas: Digital Business, Digital Operations, Digital Systems and Technology and Consulting.

Equinix Inc.

Equinix provides colocation space and related offerings. The company operates International Business Exchange? (IBX?) data centers across the Americas; Europe, Middle East and Africa and Asia-Pacific geographic regions where customers directly interconnect with a network ecosystem of partners and customers. The company's data center solutions include IBX Data Centers and xScale Data Centers. The company's Interconnection Solution connect businesses within and between its data centers across its global platform. The company's edge services help businesses deploy as-a-service networking, security and hardware across its data center footprint, as an alternative to buying, owning and managing the physical infrastructure.

Gartner Inc.

Gartner is a research and advisory company. The company's principal products and services are delivered through its three business segments: Research, which provides insights and advice across various functional areas of the enterprise through research, briefings, proprietary tools, access to the company's research personnel, peer networking services and membership programs; Conferences, which provides business personnel across an organization the opportunity to learn, share and network; and Consulting, which helps chief information officers and other senior executives driving technology-related strategic initiatives move from insight to action.

INFOSYS LTD

Kronos Worldwide Inc.

Kronos Worldwide is a producer and marketer of titanium dioxide pigments (TiO2), a base industrial product used in a range of applications. The company, along with its distributors and agents, sells and provides technical services for customers in countries in Europe, North America and Asia Pacific. The company operates two ilmenite mines in Norway pursuant to a governmental concession with an unlimited term. The company also manufactures and sells iron-based chemicals, which are co-products and processed co-products of the sulfate and chloride process TiO2 pigment production. The company manufactures and sells titanium oxychloride and titanyl sulfate, which are side-stream products from the production of TiO2.

Leidos Holdings Inc.

Leidos Holdings is a holding company. Through its subsidiaries, the company is engaged in a science, engineering and information technology that provides services and solutions in the defense, intelligence, civil and health markets. The company's defense solutions segment deploys solutions in the areas of intelligence surveillance and reconnaissance, enterprise information technology, integrated systems, cybersecurity and global services. The company's civil segment integrates and protects physical, digital and data domains. The company's health segment delivers solutions to federal and commercial customers that are responsible for the health and well-being of people including service members and veterans.

Science Applications International Corp.

Science Applications International provides technical, engineering and enterprise information technology (IT) services. The company provides engineering, systems integration and information technology offerings for government projects and provides a range of services with an emphasis on differentiated technology services. The company's offerings include: engineering; technology and equipment platform integration; maintenance of ground and maritime systems; logistics; training and simulation; operation and program support services; and end-to-end services spanning the design, development, integration, deployment, management and operations, sustainment and security of its customers' entire IT infrastructure.

The Hackett Group

Hackett Group is an advisory and technology consulting firm. The company's services include benchmarking, executive advisory, business transformation, enterprise performance management, working capital management, implementing, training and advisory to global business services. The company also provides services in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its Oracle and SAP practices. The company has engagements in a variety of industries, including automotive, consumer goods, financial services, technology, life sciences, manufacturing, media and entertainment, retail, telecommunications, transportation and utilities.

TRINSEO PLC

Universal Stainless & Alloy Products Inc.

Universal Stainless & Alloy Products and its wholly-owned subsidiaries manufacture and market semi-finished and finished steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. The company produces a range of steel grades using several manufacturing processes including argon oxygen decarburization, electro-slag remelted, vacuum induction melting and vacuum-arc remelted. At its Bridgeville and North Jackson facilities, the company produces steel products in the form of semi-finished and finished long products (ingots, blooms, billets and bars). In addition, the Bridgeville facility produces flat rolled products (slabs and plates).

Vectrus

Vectrus provides facility and logistics services and information technology and network communications services in Asia, Europe, the Middle East and the U.S. The company's facility and logistics services consist of airfield management, ammunition management, civil engineering, communications, emergency services, equipment maintenance, repair and services, life support activities, public works, security, transportation operations, and warehouse management and distribution. The company's information technology and network communications services consist of communications, management and service support, network and cyber security, systems installation and activation and mission support.

WIPRO LTD

Provider
Vermilion Research
Vermilion Research

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.

Analysts
Dave Nicoski

Ross LaDuke

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