Report
Dave Nicoski ...
  • Ross LaDuke
EUR 44.79 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Upgrading Health Care to Market Weight

Breadth continues to improve and Russell 2000 (IWM) small-caps and the Dow remain bullish, all while the S&P 500 and Nasdaq 100 (QQQ) are going through a pullback/consolidation phase. Considering the Russell 2000 vs. S&P 500 ratio is reversing a 3.5-year downtrend, we expect this trend of small-cap outperformance to continue for months or longer. We will maintain our bullish view on small-caps (IWM) and the Dow as long as they remain above $210 and 39,800, respectively. In terms of the S&P 500 and Nasdaq 100 (QQQ), recent deterioration suggests they could be looking at anywhere between a 1- to 4-month pullback/consolidation, and we believe there is a high probability that an important low will be established near the election. Potential pullback zones we would look for include 5100-5191 on the S&P 500 and $443-$449 on the QQQ; as long as these supports hold, our long-term bullish outlook (since early-November 2023) remains intact, and we remain buyers on pullbacks.

Upgrading Health Care to Market Weight; New Risk-Off Signals. We are upgrading cap-weighted Health Care (XLV) to market weight with RS reversing its 1.5+ year downtrend – add exposure. The XLV is one of four "defensive" Sectors that provide important clues for current risk appetites, so we would view continued outperformance as a risk-off signal for the broad market. Utilities (XLU) appears to be starting another round of outperformance, and Staples (XLP) has had meaningful outperformance over the past two weeks as well. Outperformance from these defensives can continue, and, alongside semiconductors (SOXX) deteriorating, a weakening labor market, and a Fed that is behind the curve, is why we are expecting a pullback in the S&P 500 and QQQ... see chart below and pages 2-3.
S&P 500 and Nasdaq 100 (QQQ). The S&P 500 decisively broke below its 20-day MA, but has held above gap support from June 12th at 5375-5409. We would need to see the 5585 level get reclaimed in order to have confidence that a bottom is in. The Nasdaq 100 (QQQ) remains well-below its 20-day MA and also broke below gap support from June 12 at $467-$472; $474 is now formidable short-term resistance, though we would need to see $489 get reclaimed in order to have confidence that a bottom is in... see page 4.
Risk-On Signals. We still see little reason to expect a major pullback or bear market, as most market dynamics remain bullish: high yield spreads are at 2.5-year narrows, the MOVE index remains at 2.5-year lows, and Treasury yields, crude oil, gasoline (UGA), and U.S. dollar (DXY) are all trending sideways to lower.
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.

Brookdale Senior Living Inc.

Brookdale Senior Living is a holding company. Through its subsidiaries, the company is an operator of senior living communities. The company's Community offerings include: independent living, which is for middle to upper income seniors; assisted living and memory care, which provides housing and assistance to mid-acuity frail and elderly residents; and continuing care retirement, which provides living arrangements and services to accommodate various physical ability and health. Through its Health Care Services segment the company provides home health, hospice and outpatient therapy services, and education and wellness programs, to residents of its communities and to seniors living outside of its communities.

Capital Senior Living

Community Health Systems Inc.

Community Health Systems is a holding company. Through its subsidiaries, the company operates general acute care hospitals and outpatient facilities. The company provides healthcare services through the hospitals that it owns and operates and affiliated businesses in non-urban and selected urban markets. Services provided through the company's hospitals and affiliated businesses include general acute care, emergency room, general and specialty surgery, critical care, internal medicine, obstetrics, diagnostic, psychiatric and rehabilitation services. The company also provides additional outpatient services at urgent care centers, occupational medicine clinics, imaging centers, cancer centers and ambulatory surgery centers.

Ensign Group Inc.

Ensign Group is a holding company. Through its operating subsidiaries, the company provides skilled nursing, senior living and rehabilitative services, as well as other ancillary businesses. In transitional and skilled services, the company provides short and long-term nursing care services for patients with chronic conditions, prolonged illness, and the elderly. The company's senior living companies provide residential accommodations, activities, meals, housekeeping and assistance in the activities of daily living to seniors who are independent or who require some support, but not the level of nursing care provided in a skilled nursing operation. The company's other business lines includes of mobile ancillary services.

HCA Healthcare Inc

HCA Healthcare is a holding company. Through its subsidiaries, partnerships and joint ventures, the company owns and operates hospitals and related health care entities. Most of the company's general, acute care hospitals provide medical and surgical services, including inpatient care, intensive care, cardiac care, diagnostic services and emergency services. The general, acute care hospitals also provide outpatient services such as outpatient surgery, laboratory, radiology, respiratory therapy, cardiology and physical therapy. The company's psychiatric hospitals provide therapeutic programs including child, adolescent and adult psychiatric care, adolescent and adult alcohol and drug abuse treatment and counseling.

Laureate Education Inc. Class A

Laureate Education is engaged in providing higher education programs and services to students through an international network of licensed universities and higher education institutions (institutions). The company's programs are provided through institutions that are campus-based and internet-based, or through electronically distributed educational programs. The company has five reportable segments: Brazil; Mexico; Andean; Rest of World; and Online and Partnerships. The company's Online and Partnerships segment principally consists of Walden University.

NHC COMMUNICATIONS INC COM

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.

Select Medical Holdings Corporation

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.

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

Tenet Healthcare Corporation

Tenet Healthcare is a healthcare services company. Through its subsidiaries, partnerships and joint ventures, including USPI Holding Company, Inc., the company operates hospitals, surgical hospitals and outpatient centers. In addition, the company's Conifer Holdings, Inc. (Conifer) subsidiary provides healthcare business process services in the areas of hospital and physician revenue cycle management and care solutions to healthcare systems, as well as individual hospitals, physician practices, self-insured organizations, health plans and other entities. The company has three reportable segments: Hospital Operations and other; Ambulatory Care; and Conifer.

Universal Health Services Inc. Class B

Universal Health Services owns and operates, through its subsidiaries, acute care hospitals and outpatient facilities and behavioral health care facilities. The company owns and/or operates inpatient facilities and outpatient and other facilities located in several states including, Washington, D.C., the United Kingdom, and Puerto Rico. Services provided by the company's hospitals include general and specialty surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services, pharmacy services and/or behavioral health services. The company's reportable operating segments consist of acute care hospital services and behavioral health care services.

Universal Technical Institute Inc.

Universal Technical Institute is a provider of postsecondary education for students seeking careers as automotive, diesel, collision repair, motorcycle and marine technicians as well as welders and computer numeric control machining technicians. The company provides certificate, diploma or degree programs under the banner of several brands, including Universal Technical Institute, Motorcycle Mechanics Institute and Marine Mechanics Institute and NASCAR Technical Institute. Additionally, the company provides manufacturer specific advanced training (MSAT) programs, including student-paid electives, at its campuses and manufacturer or dealer sponsored training at certain campuses and training centers.

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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