Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.41 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Downgrading Energy to Market Weight

Over the past two weeks, we have been steadfast in our belief that this current rally/short squeeze is likely to fizzle in the 4100-4165 area on the S&P 500. This has generally held true as last week's high was 4195 before moving back below 4165 the following day. Still, there has yet to be any meaningful deterioration and we cannot rule out the S&P 500 reaching higher, potentially for 4300-4325 (August 2022 highs), in an attempt to shake out remaining shorts and lure-in new bulls. Regardless, we continue to preach caution and believe that upside is limited on the market indexes. Any combination of a continued strong labor market or hotter-than-expected inflation is all that would be needed to upset the market.

S&P 500. Short-term, we are watching 4090-4100 for support and 4165-4200 as resistance on the S&P 500; a break above resistance would likely mean a trip to 4300-4325, and a break below support would likely mean more downside ahead, to 3950-4000, and possibly lower... see chart below.
Downgrading Energy to Market Weight. The cap- and equal-weighted Energy Sectors (XLE, RYE) display 1+ year RS uptrend violations -- reduce exposure... see pages 2-3.
Treasury Yields, U.S. Dollar (DXY), Commodities/WTI Crude. The 10-year Treasury yield continues to hold above our 3.4% support level, but remains within the confines of a 3.5-month descending triangle consolidation pattern. The 1-year Treasury yield just broke out yesterday to multi-year closing highs for the first time in 3 months; this is a bearish signal for the broad equity market as it indicates a more hawkish Fed and potentially higher-for-longer inflation. The DXY is currently testing a confluence of resistance in the $103.50-$104 range; a breakout above $104 on the DXY would likely mean equities are headed lower. The Bloomberg Commodity index (DJP) is on the cusp of a major breakdown below $32 (7-month support), while WTI crude oil continues to consolidate between support at $72 and resistance at $82... see pages 4-5.
Indexes & Sectors of Interest. Last week we highlighted many indexes and Sectors that were testing resistance. Several broke out, but several did not; in general, growth areas tended to be the ones breaking out, while more value areas did not. Areas breaking out included QQQ, ARKK, XLY, and IWM (now watching for possible failed breakouts), while areas that did not break out include DJIA, RSP, XLF, XLE, and MCHI... see page 6.
Underlyings
Abercrombie & Fitch Co. Class A

Abercrombie & Fitch, through its subsidiaries, is a retailer which primarily sells its products through its wholly-owned store and direct-to-consumer channels, as well as through various third-party wholesale, franchise and licensing arrangements. The company provides an assortment of apparel, personal care products and accessories for men, women and children under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The company has operations in North America, Europe, Asia and the Middle East. The company's operating segments are brand-based: Hollister and Abercrombie, the latter of which includes the company's Abercrombie & Fitch and abercrombie kids brands.

American Eagle Outfitters Inc.

American Eagle Outfitters is a multi-brand retailer. The company operates retail stores and online at www.ae.com and www.aerie.com. The company provides a range of apparel and accessories for men and women under the American Eagle Outfitters brand, and intimates, apparel and personal care products for women under the Aerie brand. The company operates stores in the U.S., Canada, Mexico, Hong Kong, and China. The company also has license agreements with third-parties to operate American Eagle Outfitters and Aerie stores throughout Asia, Europe, India, Latin America and the Middle East. The company also operates two other brands, Tailgate, a vintage, sports-inspired apparel brand, and Todd Snyder New York, a menswear brand.

BATH & BODY WORKS INC

BJ's Restaurants Inc.

BJ's Restaurants operates in the casual dining segment of the restaurant industry. The company's restaurants feature a number of menu offerings including: slow roasted entrees, such as, prime rib; EnLIGHTened Entrees? such as its Cherry Chipotle Glazed Salmon; its deep-dish pizza; the Pizookie? dessert; and its BJ's proprietary craft beers. The company owns and operates restaurants located in various states, and its proprietary craft beer is produced at various locations, its Temple, TX brewpub locations and by independent third party brewers using its proprietary recipes. The company also produces its proprietary non-alcoholic craft sodas including root beer, ginger beer, cream, orange and black cherry soda.

Bloomin' Brands Inc.

Bloomin' Brands is a holding company. Through its subsidiaries, the company is a casual dining restaurant company. The company has four concepts: Outback Steakhouse, which is a casual steakhouse restaurant concept focused on steaks and Australian decor; Carrabba's Italian Grill, which provides Italian cuisine; Bonefish Grill, which focuses on fish, wood-grilled items and cocktails; and Fleming's Prime Steakhouse & Wine Bar, which is a steakhouse concept featuring beef, chops, fish, seafood and poultry, salads and side dishes. The company owns and operates restaurants across the U.S., Puerto Rico, Guam and other countries.

Brady Corporation Class A

Brady is a manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The company is organized within two segments: Identification Solutions, which includes industrial and healthcare identification products in several categories, including facility identification and protection, product identification, wire identification, people identification, patient identification, and custom wristbands; and Workplace Safety, which includes workplace safety and compliance products in several categories, including safety and compliance signs, tags, and labels, informational signage, asset tracking labels, and first aid products.

Brinker International Inc.

Brinker International is engaged in owning, developing, operating and franchising the Chili's? Grill & Bar (Chili's) and Maggiano's Little Italy? (Maggiano's) restaurant brands. Chili's operates in the bar and grill category of casual dining. Chili's menu includes burgers, fajitas, baby back ribs and margaritas. Chili's To Go menu is available online, by calling the restaurant, or through its mobile app. Maggiano's is a casual restaurant brand providing Italian-American cuisine. Dishes are served in both a la carte and family style. The company provides a range of lunch and dinner options, complimented by a wine list and cocktails.

Buckle Inc.

The Buckle is a retailer of casual apparel, footwear, and accessories for young men and women. The company markets a selection of mainly brand name casual apparel including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. The company provides denims from brands such as Miss Me, Rock Revival, KanCan, Flying Monkey, and Levi's. The company also incorporates services such as hemming, gift wrapping, layaways, a guest loyalty program, the Buckle private label credit card, personalized stylist services, and an order system that allows stores to obtain specifically requested merchandise from other the company stores or from the company's online order fulfillment center.

Cheesecake Factory Incorporated

The Cheesecake Factory operates casual dining restaurants. The company operates Company-owned restaurants under: The Cheesecake Factory?, which provides menu including appetizers, pizza, seafood, steaks, chicken, burgers, small plates, pastas, salads, sandwiches and omelettes, and gluten-free items; Grand Lux Cafe?, which provides American dishes and international favorites, including appetizers, pasta, seafood, steaks, chicken, burgers, salads, and desserts; and RockSugar Southeast Asian Kitchen?, which showcases the cuisines of Thailand, Vietnam, Malaysia, Singapore, Indonesia and India. The company also produces desserts for its restaurants, international licensees and third-party bakery customers.

Chuy's Holdings Inc.

Chuy's Holdings is a restaurant concept that provides Mexican and Tex Mex inspired food. The company provides the same menu during lunch and dinner, which includes enchiladas, fajitas, rellenos, tacos, burritos, combination platters and daily specials, complemented by a variety of appetizers, soups and salads. Each of the company's restaurants also provide a variety of sauces, including the Hatch Green Chile, Boom-Boom and Creamy Jalapeno sauces. The company also provides a bar in all of its restaurants providing its customers a variety of beverage offerings, featuring a selection of cocktails including its on-the-rocks margaritas made with lime juice and the King's Punch, a rum cocktail.

Citi Trends Inc.

Citi Trends is a retailer of fashion apparel and accessories for the entire family. The company also provides a variety of products from less recognized brands and a lesser amount representing private label products under its brands. The company's merchandise includes apparel, accessories and home. Within apparel, the company provides fashion sportswear for men, women and children, including offerings for newborns, infants, toddlers, boys and girls. Accessories include handbags, jewelry, footwear, belts, intimate apparel, scrubs and sleepwear. Home includes functional bedroom, bathroom and kitchen products, as well as beauty and toys.

CRANE HOLDINGS CO

Federal Signal Corporation

Federal Signal designs, manufactures and supplies products and solutions for municipal, governmental, industrial and commercial customers. Products manufactured and supplied, and services rendered, by the company are divided into two segments: Environmental Solutions Group, which manufactures and supplies a range of street sweeper vehicles, sewer cleaner and vacuum loader trucks, hydro-excavation trucks, waterblasting equipment, dump truck bodies and trailers; and Safety and Security Systems Group, which manufactures and supplies systems and products that law enforcement, fire rescue, emergency medical services, campuses, military facilities and industrial sites use to protect people and property.

Fiesta Restaurant Group Inc.

Fiesta Restaurant Group is a holding company. Through its wholly-owned subsidiaries Pollo Operations, Inc. and its subsidiaries, and Pollo Franchise, Inc., (collectively Pollo Tropical) and Taco Cabana, Inc. and its subsidiaries (collectively Taco Cabana), the company owns, operates and franchises restaurant brands, Pollo Tropical? and Taco Cabana?. The company's Pollo Tropical restaurants provide fire-grilled chicken marinated in a proprietary blend of tropical fruit juices and spices. The company's Taco Cabana restaurants serve Mexican-inspired food, including tacos, flame-grilled USDA Choice steak and chicken fajitas, quesadillas, flautas, enchiladas, burritos, and salads served in its Cabana Bowl?.

Gap Inc.

The Gap is an apparel retail company. The company provides apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands. The company has stores in the U.S., Canada, the U.K., France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico, and has franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic stores throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate stores that sell apparel and related products under the company's brand names.

Guess? Inc.

GUESS? designs, markets, distributes and licenses collections of apparel and accessories for men, women and children. The lines include collections of clothing, including jeans, pants, skirts, dresses, shorts, blouses, shirts, jackets, knitwear and intimate apparel. In addition, the company selectively grants licenses to design, manufacture and distribute a range of products that complement its apparel lines, including eyewear, watches, handbags, footwear, kids' and infants' apparel, outerwear, fragrance, jewelry and other fashion accessories. The company's businesses are grouped into five reportable segments: Americas Retail, Americas Wholesale, Europe, Asia and Licensing.

ITT Inc.

ITT is a manufacturer of engineered components and customized technology solutions for the transportation, industrial, and oil and gas markets. The company's segments are: Motion Technologies, which manufactures brake pads, shims, shock absorbers, energy absorption components, and sealing technologies; Industrial Process, which provides a portfolio of industrial pumps, valves, and plant optimization systems and services; and Connect and Control Technologies, which designs and manufactures a range of connectors and products for applications supporting various markets including aerospace and defense, industrial, transportation, medical, and oil and gas.

Kadant Inc.

Kadant is a supplier of equipment and components used in process industries worldwide. Through its Papermaking Systems segment, the company develops, manufactures, and markets equipment and products for the global papermaking, paper recycling, recycling and waste management, and other process industries. Through its Wood Processing Systems segment, the company develops, manufactures, and markets stranders and related equipment used in the production of oriented strand board. Through its Fiber-based Products business, the company manufactures and sells granules derived from papermaking by-products for use as carriers for agricultural, home lawn and garden, and lawn, turf and ornamental applications.

Nathan's Famous Inc.

Nathan's Famous is engaged in operating or franchising a chain of retail fast food restaurants featuring the Nathan's World Famous Beef Hot Dog, crinkle-cut French-fried potatoes and a variety of other menu offerings. The company also licenses the manufacture and sale of Nathan's Famous packaged hot dogs, crinkle-cut French fries and a number of other products to a variety of third parties for sale to supermarkets, club stores and grocery stores. The company is also the owner of the Arthur Treacher's brand. Arthur Treacher's main product is its Original Fish & Chips product consisting of fish fillets coated with a batter, deep-fried, and served with English-style chips and corn meal hush puppies.

SPX TECHNOLOGIES INC

Standex International Corporation

Standex International is a manufacturing company. The company's segments include: Food Service Equipment, which provides refrigeration, display merchandising and component pumps for the Commercial Food Service and Life Sciences markets; Engraving, which creates textures and surface finishes on tooling; Engineering Technologies, which provides metal-formed solutions for Original Equipment Manufacturers and Tier-1 manufacturers; Electronics, which provides custom magnetic sensing and power conversion components and assemblies; and Hydraulics, which manufactures mobile hydraulic cylinders and complete hydraulic systems for the heavy off-road construction and refuse markets.

Texas Roadhouse Inc.

Texas Roadhouse is a restaurant company operating predominately in the casual dining segment. The company operates Texas Roadhouse restaurants and Bubba's 33 restaurants. In addition, the company operates restaurants outside of the casual dining segment. The Texas Roadhouse restaurants provide an assortment of steaks hand-cut on the premises and cooked to order over open grills. In addition to steaks, the company also provides its guests a selection of ribs, seafood, chicken, pork chops, pulled pork and vegetable plates, hamburgers, salads and sandwiches. Bubba's 33 is a sports restaurant. The company's menu features burgers, pizza and wings as well as a variety of appetizers, sandwiches and dinner entrees.

Urban Outfitters Inc.

Urban Outfitters is engaged in the operation of a general consumer product retail and wholesale business selling to customers through various channels including retail locations, websites, catalogs and mobile applications. The company has two segments: Retail, which consists of its Anthropologie, Bhldn, Free People, Terrain and Urban Outfitters brands and its Food and Beverage division; and Wholesale, which designs, develops and markets young women's contemporary casual apparel, intimates, FP Movement activewear and shoes under the Free People brand, home goods, including gifts, tabletop and textiles, under the Anthropologie brand and the BDG apparel collection under the Urban Outfitters brand.

Wingstop Inc.

Wingstop is a franchisor and operator of restaurants that focuses on cooked-to-order, hand-sauced and tossed chicken wings. The company provides its guests several flavors on its bone-in and boneless chicken wings and tenders paired with seasoned fries, Ranch, and Bleu Cheese dips. The company's proprietary flavors, which range from extremely hot to mild includes Atomic, Mango Habanero, Cajun, Original Hot, Spicy Korean Q, Louisiana Rub, Mild, Hickory Smoked BBQ, Lemon Pepper, Garlic Parmesan, and Hawaiian. To complement its wings, the company serves seasoned fries, as well as carrots and celery and Ranch and Bleu Cheese Dips made with buttermilk.

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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