Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.65 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

SPX Reverses 4-Month Downtrend as 10-Yr Treasury Yield Breaks Key Support; Upgrading Discretionary

In last week's Compass (July 26) we discussed some positive signals that we believe suggested the lows for this bear market may have already been established, or that downside is limited from here. We continue to see more evidence that supports this claim; as a result, we are upgrading our outlook to neutral.

Positive Signals: S&P 500, Nasdaq 100, 10-Yr Treasury Yield, Small-Cap Growth. Last week we noted several things we needed to see in order to get more constructive on the broad market, and some of them did indeed occur. This includes the S&P 500 reversing topside its 4-month downtrend as it broke above 4030 last week, the Nasdaq 100 (QQQ) breaking above $315, and the 10-year Treasury yield breaking below 2.70%. Moving forward we expect to see support for the S&P 500 and QQQ near their respective 50-day MAs, and the last major upside hurdle resides at their YTD downtrends (4350-4380 and $330, respectively). Breaks below their 50-day MAs would increase the likelihood of another test of the YTD lows. Another major positive signal is the Russell 2000 Growth index (IWO) has already reversed topside its 8.5-month downtrend; small-cap growth stocks led to the downside, so the fact that they are one of the first to turn higher is a very positive sign for the broad market... see charts below and page 3.
Positive Signals: Russell Small- and Micro-Caps. The Russell 2000 (IWM) and Russell Micro-Caps (IWC) are reversing topside major resistance at their 9-month downtrends. We expect to see support at their respective 50-day MAs moving forward, but breaks below their 50-day MAs would increase the likelihood of another test of the YTD lows... see page 4.
Big Picture Trends. We are upgrading Discretionary to market weight; RS is reversing its 8-month downtrend on the cap-weighted Sector (XLY), a major positive for the broad market as this Sector historically outperforms following bear markets. The Russell 1000 Value vs. Growth ratio displays a major breakdown, and we expect growth to continue outperforming. The U.S. dollar (DXY) is still above $93.70 and WTI crude oil is still above $93; however, both appear vulnerable to breakdowns... see pages 5-6.
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.

Applied Industrial Technologies Inc.

Applied Industrial Technologies is a distributor of bearings, power transmission products, fluid power components and systems, specialty flow control solutions, and other industrial supplies, operating in North America, Australia, New Zealand, and Singapore. In addition, the company provides engineering, design, and systems integration for industrial, fluid power, and flow control applications, as well as customized mechanical, fabricated rubber, fluid power, and flow control shop services. The company has two reportable segments: service center based distribution; and fluid power and flow control.

AutoZone Inc.

AutoZone is a retailer and a distributor of automotive replacement parts and accessories. The company operates stores in the United States, including Puerto Rico and Saint Thomas, Mexico, and Brazil. Each store carries a product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. In addition, the company has a commercial sales program that provides commercial credit and delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. The company also sells the ALLDATA brand automotive diagnostic and repair software.

Eaton Corp. Plc

Flowserve Corporation

Flowserve is a manufacturer and aftermarket service provider of flow control systems. The company develops and manufactures flow control equipment integral to the movement, control and protection of the flow of materials in its customers' processes. The company's segments are: Flowserve Pump Division, which are for custom, pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and Flow Control Division, which are for engineered and industrial valves, control valves, actuators and controls and related services.

Genuine Parts Company

Genuine Parts is engaged in the distribution of automotive replacement parts, industrial parts, and business products. The company's reportable business segments are: Automotive, which distributes automotive parts and accessory items and provides inventory, cataloging, marketing, training and other programs to the automotive aftermarket; Industrial, which distributes industrial replacement parts and related supplies such as bearings, mechanical and electrical power transmission products, industrial automation, and hose, among others; and Business Products, which is engaged in the wholesale distribution of a line of office and other business-related products through a customer base of resellers.

Graco Inc.

Graco is a manufacturing company. The company designs, manufactures and markets systems and equipment used to move, measure, control, dispense and spray fluid and powder materials. The company classifies its business into three segments: Industrial, which includes its Industrial Products and Applied Fluid Technologies divisions and markets equipment and solutions for moving and applying paints, coatings, sealants, adhesives and other fluids; Process, which includes its Process, Oil and Natural Gas, and Lubrication divisions and markets pumps, valves, meters and accessories; and Contractor, which markets sprayers for architectural coatings for painting, corrosion control, texture and line striping.

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.

Ingersoll Rand Inc.

Ingersoll Rand is a holding company. Through its subsidiaries, the company is a provider of flow control and compression equipment and associated aftermarket parts, consumables and services. The company's segments are: Industrials, which designs, manufactures, markets and services air compression, vacuum and blower products; Energy, which designs, manufactures, markets and services positive displacement pumps, liquid ring vacuum pumps, compressors and integrated systems, engineered fluid loading and transfer equipment and associated aftermarket parts, consumables and services; and Medical, which designs, manufactures and market gas, liquid and precision syringe pumps and compressors.

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.

Lakes Oil N.L.

Lakes Oil is engaged in hydrocarbon exploration and investment. Co. has two reportable segments. Co.'s first segment is engaged in the exploration for hydrocarbon reserves, principally in on-shore regions of Victoria, Australia. Co.'s second segment is engaged in the investment in entities engaged in exploration for energy reserves.

Lincoln Educational Services

Lincoln Educational Services provides post-secondary education to high school graduates and working adults. The company provides programs in automotive technology, skilled trades, which include heating, ventilating and air conditioning, welding and computerized numerical control and electronic systems technology, among other programs; healthcare services, which include nursing, dental assistant, medical administrative assistant, among other programs; hospitality services, which include culinary, therapeutic massage, cosmetology and aesthetics; and information technology, which consists of information technology programs.

Monro Inc

Monro is engaged principally in providing automotive undercar repair and tire sales and services. The company provides a range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. The company also provides other products and services, including tires and routine maintenance services, including state inspections. The company focuses on the repair and replacement of parts which periodically replaced as they wear out. The company does not perform under-the-hood repair services except for oil change services, various flush and fill services and some minor tune-up services.

O'Reilly Automotive Inc.

O'Reilly Automotive is a retailer of automotive aftermarket parts, tools, supplies, equipment and accessories, selling its products to both do-it-yourself and service provider customers. The company's stores carry a product line, including: new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze, appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and accessories, such as floor mats, seat covers and truck accessories.

Parker-Hannifin Corporation

Parker Hannifin is a manufacturer of motion and control technologies and systems, providing engineered solutions for a variety of mobile, industrial and aerospace markets. The company has two reporting segments: Diversified Industrial and Aerospace Systems. The company's Diversified Industrial segment products consist of a range of motion-control and fluid systems and components, which are categorized into the following groups: Engineered Materials, Filtration, Fluid Connectors, Instrumentation, and Motion Systems. The company's Aerospace Systems Segment products are used in commercial and military airframe and engine programs and include control actuation systems and components and pneumatic control components.

Perdoceo 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.

Strategic Education Inc.

Strategic Education is an education services company. The company provides campus-based and online post-secondary education offerings through two subsidiaries, Strayer University and Capella University. Strayer University provides undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, nursing, public administration, and criminal justice at physical campuses, primarily located in the eastern U.S., and online. Capella University is an online post-secondary education company that provides a variety of bachelor's, master's and doctoral degree programs primarily delivered to working adults.

Stride Inc

Trane Technologies plc

Ingersoll-Rand provides products, services and solutions to enhance air in homes and buildings, transport and protect food. Co.'s segments are: Climate. which includes Trane® and American Standard® Heating & Air Conditioning, providing heating, ventilation and air conditioning systems, and commercial and residential building services, parts, support and controls, energy services and building automation as well as transport temperature control solutions; and Industrial, which includes compressed air and gas systems and services, power tools, material handling systems, ARO® fluid management equipment, as well as Club Car ® golf, utility and rough terrain vehicles.

Xylem Inc.

Xylem is water technology company. The company designs, manufactures and services engineered solutions ranging across a variety of applications primarily in the water sector, but also in electric and gas. The company's business segments are: water infrastructure, which serves the water infrastructure sector with pump systems, filtration, ultraviolet and ozone systems and pumping solutions; Applied Water, which serves the usage applications sector with water pressure boosting systems; and Measurement and Control Solutions, which serves the utility infrastructure solutions and services sector by delivering communications, smart metering, measurement and control technologies and infrastructure technologies.

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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