Report
Dave Nicoski ...
  • Ross LaDuke
EUR 217.56 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

A Successful Retest... Thus Far

As expected, the S&P 500 has made a retest of the February low. As outlined in previous reports, we are watching the S&P's intraday low of 2,532.69 hit on 2/9/18 and the 200-day moving average as critical support levels. One concerning development we have noticed is, since the February correction and subsequent retest of support, the percentage of stocks breaking below their 200-day moving average has increased, and is suggestive of a deterioration in market breadth.

• S&P 500 support holding thus far. As referenced above, we view the 200-day moving average as a critical support level. We finally got a retest that we have been looking for and we are now watching for signs of further weakness or stabilization which we expect to see play out over the next several weeks... see below.

• Equal-weight Health Care takes the lead. Health Care remains a tale of two market caps, with small-caps leading and large-caps underperforming the broad market. Within the Sector, overweight small-caps... see page 2.

• Downgrading Materials to market weight. Our equal-weighted Materials Sector's relative strength is stuck in a sideways consolidation while the cap-weighted counterpart underperforms, justifying our downgrade... see page 2.

• Growth over value; Market cap neutral. We reiterate our recommendation to add small-cap exposure relative to large-caps... see page 3.

• Market internals are mixed. Advance/decline lines and the Consumer Discretionary/Staples ratios (both cap- and equal-weighted versions) continue to make higher lows, but breadth has deteriorated since February.. see below and page 4.

• In today's report we highlight groups within Consumer Discretionary - three attractive and one that illustrates an area of growing deterioration. Attractive groups: CD-18 & 19 (Large- and Small-Cap Education Services) and CD-36 (Off-Price Retailers). Unattractive group: CD-08 (Home Furnishings)... see pages 9-21.
Underlyings
Adtalem Global Education Inc.

Adtalem Global Education provides educational services. The company's institutions and companies provide an array of programs across medical and healthcare, financial services and business and law. The company's segments include: Medical and Healthcare, which includes Chamberlain University and Medical and Veterinary Schools that provide educational programs in nursing and health professions, respectively; Financial Services, which includes Becker Professional Education that provides education serving the accounting and finance professions; and Business and Law, which includes Adtalem Education of Brazil institution that focuses in business, engineering, healthcare, law, management, medical and technology.

American Public Education

American Public Education is a provider of online and on-campus postsecondary education. The company provides online postsecondary education directed primarily at the needs of the military and public safety communities through American Public University System, Inc., an online university that includes American Military University and American Public University. The company provides on-campus nursing education to students in Ohio through National Education Seminars, Inc., which it refers to as Hondros College of Nursing (HCON). HCON provides nursing education to students in Ohio to serve the needs of the nursing and healthcare communities.

Armstrong Flooring Inc.

Armstrong Flooring is a producer of resilient flooring products for use primarily in the construction and renovation of commercial, residential and institutional buildings. The company designs, manufactures, sources and sells flooring products primarily in North America and the Pacific Rim.

Bassett Furniture Industries Inc.

Bassett Furniture Industries is a retailer, manufacturer and marketer of branded home furnishings. The company's products are sold primarily through a network of the company-owned and licensee-owned branded stores under the Bassett Home Furnishings (BHF) name. The company's wholesale home furnishings segment is involved principally in the design, manufacture, sourcing, sale and distribution of furniture products to a network of BHF stores and independent furniture retailers. The company's Retail segment includes its store network of the company-owned stores and licensee-owned stores. The company's Logistical Services segment provides network line haul freight (middle mile) and warehousing, distribution and inventory management.

Bright Horizons Family Solutions Inc.

Bright Horizons Family Solutions is a provider of child care and early education, back-up care and educational advisory services. The company provides services under contracts with employers, who provide child care, as well as other dependent care solutions and educational advisory services. The company's service offerings include full-service center-based child care and early education, back-up care, and educational advisory services. The company operates child care and early education centers across a range of customer industries with the capacity to serve children and their families in the U.S., as well as in the U.K., the Netherlands, Canada and India.

BURLINGTON STORES INC.

Burlington Stores is a holding company. Through its indirect subsidiary, Burlington Coat Factory Warehouse Corporation sells merchandise including: women's ready-to-wear apparel, accessories, footwear, menswear, youth apparel, baby, home, coats, beauty, toys and gifts. The company operates stores under the names Burlington Stores, Cohoes Fashions, Super Baby Depot, MJM Designer Shoes and an online store. Cohoes Fashions provides products similar to those offered by Burlington Stores. MJM Designer Shoes provides moderately priced designer and fashion shoes. The Super Baby Depot stores provides baby clothing, accessories, furniture and other merchandise in the middle to higher price range.

Capella Education Company

Capella Education is an online postsecondary education services company. The company's wholly owned subsidiaries include the following: Capella University, Inc., which provides a variety of doctoral, master's and bachelor's programs, primarily for working adults; Sophia Learning, LLC, which is a learning company that utilizes technology to support self-paced learning; Capella Learning Solutions, LLC, which provides online non-degree, job-ready skills, training solutions and services to individuals and corporate partners; Hackbright Academy, Inc., which is a software engineering school for women; and DevMountain, LLC, which is a software development school providing software coding education.

Career Education Corp.

Career Education's academic institutions provide education to students in a variety of disciplines through online, campus-based and blended learning programs. The company's reporting segments are: Colorado Technical University, which provides industry-relevant degree programs and academic programs in the career-oriented disciplines of business studies, nursing, computer science, engineering, information systems and technology, cybersecurity and healthcare management; and American InterContinental University, which helps personnel get the degree and provides academic programs in the career-oriented disciplines of business studies, information technologies, education and criminal justice.

Ethan Allen Interiors Inc.

Ethan Allen Interiors, through its wholly-owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.'s subsidiaries, is an interior design company, manufacturer and retailer in the home furnishings marketplace. The company aligns its business into two reportable segments: Retail, which sells home furnishings and accents to consumers through a network of the company operated design centers; and Wholesale, which is principally involved in the development of the Ethan Allen brand and encompasses all aspects of design, manufacture, sourcing, marketing, sale, and distribution of the company's range of home furnishings and accents. The company's product line includes case goods, upholstery, and home accents.

Flexsteel Industries Inc.

Flexsteel Industries is a manufacturer, importer and marketer of residential and contract upholstered and wooden furniture products. With offerings for use in home, healthcare, and recreational seating, the company distributes its furniture throughout the United States and Canada through the company's sales force and various independent representatives. The company operates in one reportable segment, furniture products. The company's furniture products business involves the distribution of manufactured and imported products consisting of a line of upholstered and wooden furniture for residential and contract markets.

Grand Canyon Education Inc.

Grand Canyon Education is an educational services company focused on providing support services to institutions in the post-secondary education sector. The company's services include: Technical and Academic Services, which provides services that relate to the ongoing maintenance of its client's educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems; Counseling Services and Support, which includes team-based counseling and other support for prospective and existing students of its client as well as financial aid processing; Marketing and Communication; and Back Office Services.

Hailiang Education Group ADS (N Shares)

Hooker Furniture Corp.

Hooker Furniture is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture. The company is organized into two segments: Hooker Branded, which includes Hooker Casegoods that covers a range of design categories and includes home entertainment, home office, accent, dining and bedroom furniture in the upper-medium price points sold under the Hooker Furniture brand; and Home Meridian, which includes Accentrics Home, home furnishings centered around a mix of pieces and materials that provide a take on home fashion, and Samuel Lawrence Furniture, focuses on offerings in bedroom, dining room, home office and youth furnishings.

Leggett & Platt Incorporated

Leggett & Platt designs and produces engineered components and products in homes and automobiles. The company's segments are: Residential Products, which supplies components and machinery used by bedding manufacturers in the production and assembly of their finished products, as well as producing private-label finished mattresses for bedding brands and retailers; Industrial Products, which supplies high-carbon drawn steel wire; Furniture Products, which supplies components used by home and work furniture manufacturers; and Specialized Products, which designs, manufactures and sells products including automotive seating components, tubing and fabricated assemblies, and hydraulic cylinders.

Mohawk Industries Inc.

Mohawk Industries is a global flooring manufacturer for residential and commercial spaces around the world. The company has three segments: Global Ceramic, which designs, manufactures, sources, distributes and markets a line of ceramic, porcelain and natural stone tile products used for floor and wall applications; Flooring North America, which designs, manufactures, sources and distributes broadloom carpet, carpet tile, rugs and mats, carpet pad, laminate, medium-density fiberboard, luxury vinyl tile (LVT) and sheet vinyl; and Flooring Rest of the World, which designs, manufactures, sources and distributes laminate, LVT and sheet vinyl, wood flooring, broadloom carpet and carpet tile collections.

New Oriental Education & Technology Group Inc. Sponsored ADR

Pier 1 Imports Inc.

Pier 1 Imports is engaged in the specialty retail operations, which consist of retail stores and an e-Commerce website conducting business under the name Pier 1 Imports, which sell a variety of decorative accessories, furniture, candles, housewares, gifts and seasonal products. The company operated stores in the U.S. and in Canada in addition to its e-Commerce website, pier1.com. The company also supplied merchandise and licensed its name to Grupo Sanborns, which sold its merchandise primarily in a store within a store format in Mexico and El Salvador and online in Mexico.

Ross Stores Inc.

Ross Stores and its subsidiaries operate two brands of off-price retail apparel and home fashion stores, which are Ross Dress for Less? (Ross) and dd's DISCOUNTS?. Ross provides name brand and designer apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 60% off department and specialty store regular prices every day. dd's DISCOUNTS provides name brand apparel, accessories, footwear, and home fashions for the entire family at savings of 20% to 70% off moderate department and discount store regular prices every day. Both of the company's Ross and dd's DISCOUNTS brands target women and men between the ages of 18 and 54.

Strayer Education Inc.

Strayer Education is an education services holding company. The company provides a range of post-secondary education and other academic programs through two wholly-owned subsidiaries: Strayer University and the New York Code and Design Academy (NYCDA). The company's subsidiary, Strayer University, provides undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, nursing, public administration, criminal justice, and Master of Business Administration online through its Jack Welch Management Institute. Also, through its subsidiary, NYCDA, the company provides non-degree courses in web and application software development.

TEMPUR SEALY INTERNATIONAL INC

Tempur Sealy International develops, manufactures, and markets bedding products. The company's portfolio of product brands includes Tempur?, Tempur-Pedic?, Sealy? featuring Posturepedic? Technology, Stearns & Foster? and Comfort Revolution?. The company operates in two segments: North America and International. The company's North America segment consists of Tempur and Sealy manufacturing and distribution subsidiaries and licensees located in United States and Canada. The company's International segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America.

TJX Companies Inc

TJX Companies is an off-price apparel and home fashions retailer. The company's segments comprised of: Marmaxx, which sells family apparel (including footwear and accessories), home fashions (including home basics, decorative accessories and giftware) and other merchandise; HomeGoods, which provides a range of home fashions, including home fashions, including furniture, rugs, lighting, soft home, decorative accessories, tabletop and cookware as well as pet, kids and gourmet food departments; TJX Canada, which operates the Winners, HomeSense and Marshalls chains in Canada; and TJX International, which operates the T.K. Maxx and HomeSense chains in Europe and the T.K. Maxx chain in Australia.

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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