Vermilion Compass: Weekly Equity Strategy
Downgrading Utilities and Staples to Market WeightWe are starting to see some positive signals that suggest the lows for this bear market may have already been established, or at the very least, that additional downside is limited from here. At the same time, the S&P 500 remains in a 4-month downtrend, and the Russell 2000 (IWM) and Russell Micro-Caps (IWC) remain in 8.5-month downtrends. We need to see these indexes reverse their downtrends (get above 4030-4040 on SPX, $189 on IWM, and $115 on IWC) and for the Nasdaq 100 (QQQ) to break above $315, in order to get more constructive at the index level. Additionally, we still need to see the US dollar, 10-year Treasury yield, and WTI crude oil break below our important support levels. Until this happens, we view rallies as bear market bounces, and the major averages could easily test the YTD lows again.
Positive Signals. The equal-weighted Discretionary vs. Staples ratio (RCD vs. RHS) is reversing topside its 8-month downtrend. RS for defensive Sectors Utilities (XLU) and Staples (XLP) has not hit a new high since May and shows signs of rolling over; we are downgrading both Sectors to market weight. Growth Sectors such as Technology (XLK) and Discretionary (XLY) display considerable price and RS improvement, which prompted us to upgrade Technology to market weight last week. The Financial Sector (XLF) and Broker-Dealers/Exchanges ETF (IAI) are reversing topside their 4-5-month downtrends. These types of developments argue for a more neutral broad market outlook, as is exactly what we would expect to see if the broad market was bottoming... see charts below and pages 3-4.
U.S. Dollar, 10-Year Treasury Yield, and WTI Crude Oil. We continue to believe that these three culprits are fueling this bear market, and that the broad equity market cannot bottom until at least two of these three form tops and start moving lower. As a reminder, we are watching $103.70 on the U.S. dollar (DXY), 2.70% on the 10-year Treasury yield, and $93 on WTI crude oil. Breaks below these levels would indicate important topping patterns, which we believe is necessary for the broad equity market to establish a reliable bottom... see page 5.
Big Picture Trends. The large-cap value vs. growth ratio has pulled back to a critical juncture. High yield spreads have narrowed over the past three weeks... see page 6.
Addus HomeCare is a home care services provider operating in three segments: personal care; hospice; and home health. The company's personal care segment provides non-medical assistance with activities of daily living, primarily to persons who are at increased risk of hospitalization or institutionalization. The company's hospice segment provides physical, emotional and spiritual care including palliative nursing care, social work, spiritual counseling, homemaker services and bereavement counseling. The company's home health segment provides home health services on a short-term, intermittent or episodic basis to individuals, typically to assist patients recovering from an illness or injury.
ArcBest is a holding company. Through its subsidiaries, the company provides a suite of freight transportation services and integrated logistics solutions. The company's operations are conducted through three reportable operating segments: Asset-Based, ArcBest, and FleetNet. The company's Asset-Based segment provides less-than-truckload services through its subsidiary, ABF Freight System, Inc., and certain other subsidiaries' motor carrier operations. The ArcBest and FleetNet reportable segments, combined, represent the company's Asset-Light operations, which provide customers end-to-end logistics solutions, designed to satisfy the supply chain and shipping requirements they encounter.
Chemed purchases, operates and divests subsidiaries engaged in business activities. The company conducts its business operations in two segments: the VITAS segment (VITAS) and the Roto-Rooter segment (Roto-Rooter). The VITAS segment provides hospice and palliative care services to its patients through a network of physicians, registered nurses, home health aides, social workers, clergy and volunteers. The Roto-Rooter segment provides plumbing, drain cleaning, water restoration and other related services to residential and commercial customers.
Choice Properties Real Estate Investment Trust is an open-ended mutual fund trust company. As of Dec. 31, 2013, Co. had an interest in 435 properties comprising 36,300,000 square feet of gross leasable area in Canada.
Hanger provides orthotic and prosthetic (O&P) services, distributes O&P devices and components, manages O&P networks and provides therapeutic solutions to patients and businesses in acute, post-acute and clinic settings. The company operates through two segments: Patient Care and Products & Services. The company's Patient Care is comprised of Hanger Clinic, which focuses the design, fabrication and delivery of custom O&P devices. The company also provides payor network contracting services to other O&P providers through this segment. The company's Products and Services manufactures and sells therapeutic footwear for diabetic patients in the podiatric market through its subsidiary, SureFit Shoes, LLC.
Knight-Swift Transportation Holdings is a truckload carrier and a provider of transportation solutions. The company provides multiple truckload transportation, intermodal, and logistics services using a nationwide network of business units and terminals in the United States and Mexico. In addition to its truckload services, the company contracts with third-party capacity providers to provide a range of truckload services to its customers. The company operates company tractors, independent contractor tractors, and trailers within its Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments. Additionally, the company operates tractors and intermodal containers within its Swift Intermodal segment.
Marten Transport is a temperature-sensitive truckload carrier. The company has four segments: Truckload, which provides regional short-haul and medium-to-long-haul full-load transportation services; Dedicated, which provides customized transportation solutions using temperature-controlled trailers, dry vans and other equipment; Intermodal, which transports customers' freight using its temperature-controlled trailers on railroad flatcars for portions of trips, with the balance of the trips using its tractors or, to a lesser extent, contracted carriers; and Brokerage, which arranges for third-party carriers to transport freight for its customers in temperature-controlled trailers and dry vans.
Old Dominion Freight Line is a less-than-truckload (LTL) motor carrier providing regional, inter-regional and national LTL services, which include expedited transportation. In addition to the company's primary LTL services, the company provides a range of services including container drayage, truckload brokerage and supply chain consulting. The company also provides access to its systems through multiple gateways that provide its customers and employees flexibility and access to information. The company employs vehicle safety systems, on-board and hand-held computer systems, freight handling systems and logistics technology to reduce costs and transit times.
P.A.M. Transportation Services is a holding company. Through its subsidiaries, the company is a truckload dry van carrier transporting general commodities throughout the continental U.S., as well as in certain Canadian provinces. The company also provides transportation services in Mexico under agreements with Mexican carriers. The company's operations are classified into: truckload services, which generally utilize the company-owned trucks, long-term contractors, or single-trip contractors to transport loads of freight for customers; or brokerage and logistics services, which coordinate or facilitate the transport of loads of freight for customers and generally involve the utilization of single-trip contractors.
Saia is a transportation company. The company provides regional and interregional less-than-truckload (LTL) services through a single integrated organization. The company also provides customers a range of other services, including non-asset truckload, expedited and logistics services across North America. The company's subsidiary, Saia Motor Freight Line, LLC (Saia LTL Freight) is an LTL carrier that serves several states. Saia LTL Freight is engaged in providing its customers a range of regional and interregional LTL services including time-definite and expedited options. Saia LTL Freight primarily provides its customers with solutions for shipments between 100 and 10,000 pounds.
Select Medical Holdings is managed through four business segments: critical illness recovery hospital, which consists of hospitals designed to serve the needs of patients recovering from critical illnesses; rehabilitation hospital, which consists of hospitals designed to serve patients that require intensive physical rehabilitation care; outpatient rehabilitation, which consists of clinics that provide physical, occupational, and speech rehabilitation services; and the company's subsidiary, Concentra Inc. segment, which consists of occupational health centers that provide workers' compensation injury care, physical therapy, and consumer health services and onsite clinics.
U.S. Physical Therapy, through its subsidiaries, operates outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers. The company operates through subsidiary clinic partnerships. To a lesser extent, the company operates some clinics through wholly-owned subsidiaries under profit sharing arrangements with therapists. The company has a majority interest in a company, which is a provider of industrial injury prevention. Services provided include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments.
Universal Logistics Holdings is an asset-light provider of customized transportation and logistics solutions throughout the U.S., and in Mexico, Canada and Colombia. The company has five service categories: Truckload, which includes dry van, flatbed, heavy-haul and refrigerated operations;Brokerage, which provides customers freight brokerage services, domestic and international freight forwarding, and customs brokerage; Intermodal, which includes steamship-truck, rail-truck, and support services; Dedicated, which is primarily provided in support of automotive and retail customers using van equipment; and Value-Added, which are typically dedicated to individual customer requirements.
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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