Report
Dave Nicoski ...
  • Ross LaDuke
EUR 223.43 For Business Accounts Only

Vermilion Macro Vision: Sector Synopsis

Investors continue to prefer the stability of the U.S. relative to emerging markets. The decline in emerging markets and their currencies suggest global risk aversion. U.S. equity markets are, by contrast, not showing any significant signs of coming unhinged as a result of this rout in emerging markets.

We continue to monitor the following to assess the health of the U.S. market:

• U.S. Dollar: The U.S. dollar remains the de-facto world currency and has aided the U.S. equity markets in staying a step above the malaise in global markets. However we would prefer to see stabilization in emerging market currencies lead by a decline in the U.S. dollar as we believe currency stability would spill over into global equity markets and would ultimately serve as a tailwind for the U.S. equity markets to move higher.

• Cyclicals remain leadership: While Consumer Discretionary remains leadership, Utilities and Staples are closing the gap; it doesn't help that the RTH and XLY are quite extended. Thus far there has not been a positive inflections within the RTH and XLY ratios relative to the XLP and XLU, but a number of RSI divergences are appearing. Our largest concern within the cyclical area is that, homebuilders remain weak, and semis and semi-suppliers continue to break down (AMD is a leader) and investment banking stocks remains near 52-week lows.

• Breadth of the market remains healthy. Breadth is suggestive of a bull market and supports the major indices continued advance.

• Large vs Small-caps: We have remained market cap neutral since our July Strategy when the small-cap vs. large-cap ratio's uptrend broke down. Since then the small- vs. large-cap ratio has consolidated sideways. Therefore, we remain market cap neutral despite large-caps recently beginning to close the gap relative to small-caps.

• Interest rates: The expectation of higher rates continues to gather steam and as such, the flattening of the yield curve is pressuring the Financial Sector, and has led us to downgrade it to a market weight on 9/5/18. A decisive move above the 3.1% level on the 10-year and 3.30% on the 30-year would likely present a negative headwind for the equity markets.

• Commodities: WTI is mired in a consolidation; however the spread between WTI and Brent crude has surged to new highs. Renewed sanctions for Iranian oil has created a surge in Brent pricing. Base metals continue to lag and remain in a bear market. According to recent CFTC reports, gold recently recorded its largest short position in 25 years. The chart of Gold suggests a capitulation has occurred and should be watched diligently along with the U.S. dollar for signs of a reversal.

• Emerging Markets and European Markets remain under pressure: We believe the impact of higher rates are the primary culprit to blame for continued foreign weakness. The access to the ATM (easy money policy) is receding at an alarming rate, and many of these countries/markets have truly not had enough time to repair the damage done during the financial crisis. Again, a weaker U.S. dollar may aid in stemming their declines.

In the remainder of our September Strategy we highlight opportunities within the following Sectors:

• Technology: Overweight. Technology continues to trade within the confines of multi-year price and RS uptrends, justifying our overweight recommendation. Internally, Software Groups are long-term leadership and continue to be our favorite area within Tech.

• Health Care: Overweight. Health Care continues to outperform and currently holds the top RSR from both a cap- and equal-weighted perspective. Medical device/equipment Groups are leadership and are our favorite area within Health Care.

• Consumer Discretionary: Overweight. Continued price and RS uptrends within this Sector point to a strong consumer which helps support our overall positive market outlook. Retail and apparel Groups remain leadership, ranging from auto parts and off-price stores to footwear and accessory/luxury goods.
Underlyings
Advance Auto Parts Inc.

Advance Auto Parts is an automotive aftermarket parts provider in North America, serving both professional installers (Professional), and do-it-yourself (DIY), customers as well as independently owned operators. The company's stores and branches provide a range selection of brand name, original equipment manufacturer and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. Through its integrated operating approach, the company serves its Professional and DIY customers through a variety of channels ranging from brick and mortar store locations to self-service e-commerce sites.

Autodesk Inc.

Autodesk is a design software and services company. The company is engaged in 3D design, engineering and entertainment software and services. The company's product offerings include: AutoCAD, which is a customizable and extensible CAD application for design, drafting, detailing, and visualization; AutoCAD Civil 3D, which provides surveying, design, analysis, and documentation solution for civil engineering; CAM Solutions, which is a computer-aided manufacturing software that provides solutions for computer numeric control machining, inspection, and modeling for manufacturing; and Inventor, which provides tools for 3D mechanical design, simulation, analysis, tooling, visualization, and documentation.

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.

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.

Chipotle Mexican Grill Inc.

Chipotle Mexican Grill together with its subsidiaries operates Chipotle Mexican Grill restaurants, which feature a menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. The company operates Chipotle restaurants throughout the United States, international Chipotle restaurants, and non-Chipotle restaurants. The company uses various herbs, spices and seasonings to prepare its meats and vegetables. The company also serves tortilla chips that seasoned with lime juice and salt, with sides of hand mashed guacamole, salsas, or queso. In addition to sodas, fruit and tea drinks, and organic milk, most of the company's restaurants also provide a selection of beer and margaritas.

Citrix Systems Inc.

Citrix Systems is an enterprise software company. The company markets and licenses its solutions through multiple channels worldwide, including selling through resellers, direct and over the Web. The company's partner community comprises thousands of value-added resellers known as Citrix Solution Advisors, value-added distributors, systems integrators, independent software vendors, original equipment manufacturers and Citrix Service Providers. The company provides solutions and services that it categorizes into three inter-related and complementary areas: Workspace, Networking and Professional Services.

Codexis

Codexis discovers, develops and sells proteins to its clients. The company has two segments: Performance Enzymes, which uses its technology to develop enzymes for customers using next generation sequencing and polymerase chain reaction for in vitro molecular diagnostic and molecular biology research applications; and Novel Biotherapeutics, in which it has announced a global development, option and license agreement with Societe des Produits Nestle S.A. to develop CDX-6114, its own orally administrable enzyme therapeutic candidate for the potential treatment of phenylketonuria. The company's products include protein catalysts, chemical intermediates and Codex? biocatalyst panels and kits.

Control4 Corporation

Control4 is a provider of smart home and business solutions. The company's smart home and business solutions provide consumers with the ability to integrate audio, video, lighting, temperature, security, communications, network management and other functionalities into a unified automation solution. At the center of the company's product line is the Control4 Home Operating System, which the company refers to as the C4 OS, and the related application software and software development kits. The company's products with embedded software include: controllers, interface devices, networking devices, audio solutions, video solutions, lighting products, comfort products, security products and communication products.

Dassault Systemes SA

Deckers Outdoor Corporation

Deckers Outdoor is engaged in designing, marketing and distributing footwear, apparel and accessories. The company markets its products primarily under five brands. The UGG brand is comprised of a line of footwear, apparel and accessories for women, men and children. The HOKA brand is a line of footwear and apparel. The Teva brand's product line includes sandals, shoes, and boots. Sanuk brand is comprised of casual shoe and sandal categories. Other brands consist of Koolaburra by UGG brand, a casual footwear fashion using sheepskin and other plush materials. The company's retail stores are primarily UGG brand concept and UGG brand outlet stores.

Descartes Systems Group Inc.

Descartes Systems Group is a global provider of federated network and global logistics technology solutions that help customers make and receive shipments and manage related resources. Co.'s network-based solutions, which primarily consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; inventory and asset visibility; rate and transportation management; and warehouse operations.

Dunkin' Brands Group Inc.

Dunkin' Brands Group is a franchisor of quick service restaurants serving hot and cold coffee and baked goods, as well as ice cream. Through its Dunkin' Donuts brand, the company franchises restaurants featuring coffee, donuts, bagels, breakfast sandwiches, and related products. The company licenses Dunkin' Donuts brand products sold in certain retail outlets such as retail packaged coffee, Dunkin' K-Cup? pods, and ready-to-drink bottled iced coffee. Through its Baskin-Robbins brand, the company franchises restaurants featuring ice cream, frozen beverages, and related products. The company distributes Baskin-Robbins ice cream products to certain markets for sale in Baskin-Robbins restaurants and certain retail outlets.

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.

Hill-Rom Holdings Inc.

Hill-Rom Holdings is a medical technology company. The company's reportable segments are: Patient Support Systems, which include a variety of frames and surfaces (such as medical surgical (med-surg) beds, intensive care unit beds, and bariatric patient beds), patient mobility solutions (such as lifts and other devices used to move patients), non-invasive therapeutic products and surfaces, and its information technologies and software solutions; Front Line Care, which includes its patient monitoring and diagnostics products and its respiratory health products; and Surgical Solutions, which include tables, lights, and pendants utilized within the surgical setting.

ICON Plc

Icon is engaged in providing outsourced development services to the pharmaceutical, biotechnology and medical device industries. Co. specializes in the strategic development, management and analysis of programs that support clinical development from compound selection to Phase I-IV clinical studies. Co.'s services, which are integral elements of the clinical development process, include clinical trials management, biometric activities, consulting, imaging, contract staffing, informatics and laboratory services. Co. in engaged in conducting clinical trials in most therapeutic areas on a global basis and has the operational flexibility to provide development services on a stand-alone basis.

IDEXX Laboratories Inc.

IDEXX Laboratories develops, manufactures, and distributes products and provides services primarily for the companion animal veterinary, livestock and poultry, dairy and water testing markets. The company operates primarily through three business segments: Companion Animal Group, which provides diagnostic and information management-based products and services for the veterinary market; Water Quality Products, which designs, develops, manufactures, and distributes products used in the detection of various microbiological parameters in water; and Livestock, Poultry and Dairy, which provides diagnostic products and services for livestock and poultry health.

Illumina Inc.

Illumina is engaged in sequencing- and array-based solutions for genetic and genomic analysis. The company provides whole-genome sequencing, genotyping, noninvasive prenatal testing (NIPT), and product support services. Using the company's services, customers can perform whole-genome sequencing projects and microarray projects (including large-scale genotyping studies and whole-genome association studies). The company provides NIPT services through its partner laboratories that direct samples to the company on a test send-out basis in its Clinical Laboratory Improvements Amendments-certified, College of Pathologists-accredited laboratory. The company also provides support services to customers who have purchased its products.

Intercept Pharmaceuticals Inc.

Intercept Pharmaceuticals is a biopharmaceutical company focused on the development and commercialization of therapeutics to treat progressive non-viral liver diseases. The company's marketed product, Ocaliva? (obeticholic acid or OCA), is an farnesoid X receptor agonist approved in the U.S., the European Union and several other jurisdictions for the treatment of primary biliary cholangitis in combination with ursodeoxycholic acid (UDCA) in adults with an inadequate response to UDCA or as monotherapy in adults unable to tolerate UDCA. In addition to, the company is developing OCA for multiple indications, including nonalcoholic steatohepatitis.

Johnson Outdoors Inc. Class A

Johnson Outdoors manufactures and markets seasonal outdoor recreation products used primarily for fishing from a boat, diving, paddling, hiking and camping. The company has four business segments: Fishing, which includes the Minn Kota electric motors for quiet trolling, the Humminbird sonar and GPS equipment for fishfinding, navigation and marine cartography, and Cannon downriggers for controlled-depth fishing; Camping, which includes consumer, commercial and military tents and accessories, sleeping bags, camping furniture and stoves; Watercraft Recreation, which designs and markets canoes and kayaks; and Diving, which manufactures and markets underwater diving products for recreational divers.

LivePerson Inc.

LivePerson is a cloud computing or software-as-a-service provider of solutions on a hosted basis. The company is organized into two operating segments: Business and Consumer. The Business segment enables brands to utilize the company's LiveEngage's engine to connect with consumers through an integrated suite of mobile and online business messaging technologies. The Consumer segment facilitates online transactions between independent service providers and individual consumers seeking information and knowledge for a fee via mobile and online messaging. The company's products and services include: LiveEngage, Professional Services and Consumer Offering.

Manhattan Associates Inc.

Manhattan Associates is a developer and provider of supply chain commerce solutions. The company's solutions consist of software, services, and hardware, which coordinate people, workflows, assets, events, and tasks across the functions linked in a supply chain from planning through execution. These solutions also coordinate the actions, data exchange, and communication of participants in supply chain ecosystems, such as manufacturers, suppliers, distributors, trading partners, transportation providers, channels (such as catalogers, store retailers, and Web outlets), and consumers. The company develops commerce solutions in three areas of customers' business: Supply Chain, Omnichannel and Inventory.

Materialise ADS

NIKE Inc. Class B

NIKE is engaged in the design, development and marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company focuses its NIKE Brand product offerings in Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear categories. The company markets products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, golf, lacrosse, tennis, walking, and other outdoor activities. The company has license agreements that permit unaffiliated parties to manufacture and sell, using the company-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.

Pacific Biosciences of California Inc.

Pacific Biosciences of California designs, develops and manufactures sequencing systems. Based on its Single Molecule, Real-Time sequencing technology, the company's products enable: de novo genome assembly to finish genomes in order to identify, annotate and decipher genomic structures; transcript analysis to improve annotations in reference genomes, characterize alternatively spliced isoforms in gene families, and find genes; targeted sequencing to characterize genetic variations; and real-time kinetic information for epigenome characterization. The PacBio RS II, Sequel, and Sequel II Systems conduct, monitor, and analyze biochemical sequencing reactions.

PRA Health Sciences Inc.

PRA Health Sciences is a contract research organization engaged in providing outsourced clinical development and data solution services to the biotechnology and pharmaceutical industries. The company has two reportable segments: Clinical Research, which performs a range of services across the spectrum of clinical development programs, from the filing of investigational new drug applications and similar regulatory applications to conducting all phases of clinical trials; and Data Solutions, which provides data, analytics, technology, and consulting solutions to the life sciences market including market intelligence services, consulting and services, and apps and technology.

QIAGEN NV

Qiagen is provider of Sample to Insight solutions to transform biological materials into valuable molecular insights. Co.'s sample technologies process DNA, RNA and proteins from blood, tissue and other materials. Assay technologies make these biomolecules visible and ready for analysis. Bioinformatics software interprets data. Automation solutions unite these together in molecular testing workflows. Co. provides these workflows to four classes: Molecular Diagnostics (human healthcare), Applied Testing (forensics, veterinary testing and food safety), Pharma (pharmaceutical and biotechnology companies) and Academia (life sciences research). Co. markets its products in more than 130 countries.

Quidel Corporation

Quidel is engaged in the development, manufacturing and marketing of diagnostic testing solutions. The company provides diagnostic testing solutions under various brand names, including, among others, the following: Quidel?, QuickVue?, QuickVue+?, Sofia?, Triage?, AmpliVue?, Solana?, Virena?, MicroVue?, Lyra?, FreshCells?, D3?, FastPoint?, ReadyCells?, Super E-Mix?, InflammaDry?, AdenoPlus?, ELVIRA?, ELVIS? and Thyretain?. The company's diagnostic testing solutions are separated into its four product categories: rapid immunoassay, cardiac immunoassay, specialized diagnostic solutions and molecular diagnostic solutions.

ResMed Inc.

ResMed is a holding company. Through its operating subsidiaries, the company is engaged in the development, manufacturing, distribution and marketing of medical devices and cloud-based software solutions that diagnose, treat and manage respiratory disorders including sleep disordered breathing, chronic obstructive pulmonary disease, neuromuscular disease and other chronic diseases. The company has two operating segments: Sleep and Respiratory Care and Software-as-a-Solutions. The company's portfolio of products includes devices, diagnostic products, mask systems, headgear and other accessories, dental devices, portable oxygen concentrators and cloud-based software informatics solutions.

Sony Corp. (ADS)

Stratasys Ltd.

Vista Outdoor Inc

Vista Outdoor is a designer, manufacturer and marketer of consumer products in the outdoor sports and recreation markets. The company's Outdoor Products product lines are action sports, archery/hunting accessories, outdoor cooking, golf, hydration products, optics, shooting accessories and tactical products. The Shooting Sports segment designs, develops, produces, and sources ammunition and firearms for the hunting and sport shooting markets, as well as ammunition for local law enforcement, the U.S. government and international markets. The Shooting Sports product lines include centerfire ammunition, rimfire ammunition, shotshell ammunition, reloading components, and firearms.

Wix.com Ltd.

Wix.com develops and markets an internet service that allows users to create web content. Co. is a global web development platform enabling businesses and organizations to take their businesses, brands and workflow online. Co.'s core product is the Wix Editor, a drag-and-drop visual development and website editing environment complete with high quality templates, graphics, image galleries and fonts. With Co.'s platform, Wix registered users can create and manage a professional quality digital presence tailored to their business and brands' specific look and feel that is accessible across all major browsers and the most widely used desktop, tablet and mobile devices.

Workday Inc. Class A

Workday is a provider of enterprise cloud applications for finance and human resources. The company's products include: Workday Financial Management, an application with financial capabilities, analytics and metrics, and auditable process management; and Workday Human Capital Management, which includes global human resources management (workforce lifecycle management, organization management, compensation, absence, and employee benefits administration) and global talent management (goal management, performance management, succession planning, and career and development planning). The company's other solutions include Adaptive Insights Business Planning Cloud, as well as Workday Data-as-a-Service.

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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