Report
Dave Nicoski ...
  • Ross LaDuke
EUR 47.02 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Uptrend Violations; Downgrading Energy

In last week's Compass we noted we would not be surprised by an 8-12% pullback in the Nasdaq 100 considering it was over 30% above its 200-day MA; what we experienced thus far is an 11% decline from last week's high to yesterday's low, effectively correcting some of the fluff in the market. The market needed a breather; it would have been more worrisome to us if the Nasdaq 100 and S&P 500 would have continued going parabolic. Recent declines have resulted in uptrend violations for the Nasdaq 100, S&P 500, and Russell 2000. As a result we believe near-term consolidation is likely -- potentially something similar to what the market experienced between June and early-July. Below we highlight potential support levels to watch and we explain why we believe the pullback is likely closer to its end than its beginning.

· Support Levels. On the Nasdaq 100 we see potential support in the 10,855-11,000 range followed by 10,300. On the S&P 500 we are watching 3,330 followed by 3,280 and 3,200. On the Russell 2000 (IWM) we are watching $149 followed by $145. These indexes are currently in price discovery mode as they search for support; once it is found we would expect some consolidation between said support and the highs made on 9/2/20... see charts below.

· Sector Relative Strength Rankings & Weighting Recommendations. We are downgrading Energy to underweight due to WTI crude oil breaking down and the cap-weighted Energy ETF (XLE) breaking below key $34 support... see pages 2-3.

· The Case For A Mild Pullback. We cannot rule out a major top considering the levels of frothiness we have seen in Technology/growth stocks like ZM and TSLA. However, at this point the weight of the evidence suggests this pullback is likely closer to its end than its beginning. Items supporting this idea include: (1) Energy is the only S&P 500 Sector breaking down, (2) cyclicals are still outperforming vs. defensives, (3) the US dollar (DXY) is still below 94, (4) the 10-year Treasury yield is above 0.62%, (5) high yield spreads are near multi-month lows, (6) the growth vs. value ratio remains in an uptrend, and (7) copper and lumber prices remain bullish. What would change our mind? The inverse of these things starting to occur... see pages 4-5.
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.

Boot Barn Holdings

Boot Barn Holdings is a retail chain focused on western and work-related footwear, apparel and accessories. The company's stores, which are freestanding or located in strip centers, feature an assortment of brands and styles, coupled with store associates. The company's product offering is anchored by a selection of western and work boots and an assortment of coordinating apparel and accessories. The company also carries assortments of denim, western shirts, cowboy hats, belts and belt buckles, western-style jewelry and accessories. The company's work assortment includes footwear, outerwear, overalls, denim and shirts for the physically demanding jobs.

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.

Caleres Inc.

Caleres is a footwear retailer and wholesaler. The company is engaged in the operation of retail shoe stores and e-commerce websites as well as the design, sourcing and marketing of footwear for women, men and children. The company's Famous Footwear segment includes its Famous Footwear stores, which features a selection of athletic, casual and dress shoes for the entire family. The company's Brand Portfolio segment provides retailers and consumers a portfolio of brands by designing, sourcing and marketing footwear for women and men at a variety of price points. The company's Brand Portfolio segment sells footwear on a wholesale basis to retailers as well as through its branded retail stores and e-commerce businesses.

Clarus Corporation

Clarus is a developer, manufacturer and distributor of outdoor equipment and lifestyle products focused on the climb, ski, mountain, sport and skincare markets. The company's products are sold under the Black Diamond?, Sierra?, PIEPS? and SKINourishment? brand names. The company operates within two segments: Black Diamond, which designs, manufactures, and markets outdoor engineered equipment and apparel for climbing, mountaineering, trail running, backpacking, skiing, and a range of other outdoor recreation activities; and Sierra, which manufactures a range of bullets and ammunition for both rifles and pistols that are used for precision target shooting, hunting and military and law enforcement purposes.

Columbia Sportswear Company

Columbia Sportswear is engaged in designing, sourcing, marketing, and distributing outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products. The company's brands and products include: Columbia?, which is known for outdoor apparel, footwear, accessories and equipment products designed with function suited for all seasons, activities and locations; SOREL?, which provides footwear and accessories primarily to women, as well as to men and youth consumers; Mountain Hard Wear?, which provides apparel, accessories and equipment designed to meet the needs of climbing and climbers' everyday lifestyle; and prAna?, which focuses on clothing.

Delta Apparel Co.

Delta Apparel is an international apparel company. The company has two segments: Delta Group, which is comprised of its business units focused on activewear styles including its Delta Activewear (encompassing its Delta Catalog business and FunTees private label business), Soffe, and DTG2Go business units, and markets, distributes and manufactures knit apparel under the brands of Soffe?, Delta Platinum, Delta Pro Weight? and Delta Magnum Weight? for sale to various audiences; and Salt Life Group, which is comprised of its lifestyle brands focused on apparel garments, headwear and related accessories to meet consumer preferences and fashion trends, and includes its Salt Life and Coast business units.

Fossil Group Inc.

Fossil Group is a design, marketing and distribution company that focuses on consumer fashion accessories. The company's principal offerings include a line of men's and women's fashion watches and jewelry, handbags, small leather goods, belts and sunglasses. The company's products are distributed through various distribution channels, including wholesale in countries where the company has a physical presence, direct to the consumer through the company's retail stores and commercial websites and through third-party distributors in countries where the company does not maintain a physical presence. The company's reportable operating segments are comprised of Americas, Europe, and Asia.

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.

Genesco Inc.

Genesco is a retailer and wholesaler of branded footwear, apparel and accessories. The company's segments include: Journeys Group, which includes Journeys, Journeys Kidz and Little Burgundy retail stores, e-commerce and catalog operations and sells footwear and accessories for young men, women and children; Schuh Group, which includes e-commerce operations and sells a range of branded casual and athletic footwear along with a private label offering; Johnston & Murphy Group, which includes retail stores, e-commerce and catalog operations and wholesale distribution; and Licensed Brands, which includes include the sale of footwear marketed under the Dockers? brand.

Gildan Activewear Inc.

Gildan Activewear is engaged in the manufacturing and selling of activewear, socks and underwear. Co. sells activewear products to screenprint markets in North America, Europe and other international markets. Co. is the supplier of activewear for the screenprint channel in the United States, Canada, Europe and Mexico. Co. sells socks and underwear, in addition to its activewear products, to mass market and regional retailers in North America.

GLACIAL LAKES CORN PROCESSORS

Hanesbrands Inc.

Hanesbrands is a marketer of basic innerwear and activewear apparel in the Americas, Europe, Australia and Asia/Pacific under some apparel brands, including Hanes, Champion, Bonds, DIM, Maidenform, Bali, Playtex, Lovable, Bras N Things, Nur Die/Nur Der, Alternative, L'eggs, JMS/Just My Size, Wonderbra, and Gear for Sports. The company's segments are: Innerwear, which includes apparel products, such as men's underwear, women's panties, children's underwear, socks and intimate apparel; Activewear, which includes T-shirts, fleece, performance apparel, sport shirts and thermals; and International, which includes innerwear, activewear, hosiery and home goods products, sold outside of the United States.

Lands' End Inc.

Lands' End is a retailer of casual clothing, accessories and footwear, as well as home products. The company provides products through catalogs, online at www.landsend.com, on international websites, third-party online marketplaces, and through retail locations. The company's segments consist of U.S eCommerce, Retail, Outfitters (Outfitters), Europe eCommerce and Japan eCommerce. The company's product channels are eCommerce, Retail and Outfitters. eCommerce provides products through its eCommerce websites, third party online marketplaces and direct mail catalogs. Retail sells products and services through Company Operated stores and through Lands' End Shops at Sears. Outfitters sells products to end consumers.

LVMH MOET HENNESSY

PVH Corp.

PVH is a branded apparel company. The company designs and markets branded dress shirts, neckwear, sportswear, jeanswear, performance apparel, intimate apparel, underwear, swimwear, swim products, handbags, accessories, footwear and other related products. The company also licenses the use of its trademarks to third parties and joint ventures. The company's businesses include: Tommy Hilfiger, which consists of the Tommy Hilfiger North America and Tommy Hilfiger International segments; Calvin Klein, which consists of the Calvin Klein North America and Calvin Klein International segments; and Heritage Brands, which consists of the Heritage Brands Wholesale and Heritage Brands Retail segments.

Ralph Lauren Corporation Class A

Ralph Lauren designs, markets, and distributes lifestyle products, including apparel, accessories, home furnishings, and other licensed product categories. The company's brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Chaps, and Club Monaco, among others. The company sells directly to customers via its retail stores, concession-based shop-within-shops, and through its own digital commerce sites; while its international licensing partners operated Ralph Lauren stores, Ralph Lauren concession shops, and Club Monaco stores and shops. The company has three segments: North America ; Europe; and Asia.

Shoe Carnival Inc.

Shoe Carnival is a family footwear retailers. The company provides customers a a range of dress, casual and athletic footwear for men, women and children with an emphasis on national name brands. The company operates stores in the states and Puerto Rico and provides online shopping at www.shoecarnival.com. The company's stores carry complementary accessories such as socks, belts, shoe care items, handbags, sport bags, backpacks, scarves and wallets, while its e-commerce site provides certain handbags, sport bags and backpacks. Women's, men's and children's non-athletic footwear categories are further divided into dress, casual, sport, sandals and boots.

Tillys

Tilly's is a retailer of casual apparel, footwear and accessories for young men, young women, boys and girls. The company's stores are located in malls, lifestyle centers, power centers, community centers, outlet centers and street-front locations. Customers may also shop online, where the company features the same assortment of product as is carried in its stores, supplemented by additional online-only styles. The company provides a mix of merchandise for young men, young women, boys and girls across the apparel, footwear and accessories categories. The company's apparel merchandise includes branded, fashion, and core styles for tops, outerwear, bottoms, and dresses.

Under Armour Inc. Class A

Under Armour is engaged in the development, marketing and distribution of apparel, footwear and accessories for men, women and youth. The company provides HEATGEAR?, which is designed to be worn in warm to hot temperatures under equipment or as a single layer; and COLDGEAR?, which is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. The company's footwear products include running, basketball, cleated sports, slides, training, and outdoor. The company provides digital fitness subscriptions, along with digital advertising through its MapMyFitness, MyFitnessPal and Endomondo applications.

V.F. Corporation

VF is an apparel and footwear company. The company designs, produces, procures, markets and distributes a variety of lifestyle products, including outerwear, footwear, occupational and performance apparel, jeanswear, backpacks and luggage for consumers of all ages. Products are marketed primarily under the company-owned brand names. The company's segment comprised of: Outdoor, which includes performance-based and outdoor apparel, footwear and equipment; Active, which includes active apparel, footwear and accessories; Work, which consists of work and work-inspired lifestyle apparel and footwear and occupational apparel; and Jeans, which markets denim and related casual apparel products.

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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