Report
Dave Nicoski ...
  • Ross LaDuke
EUR 233.43 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Test Of The Lows Coming?

Equities remain in rally mode after the S&P 500 was able to break above the steep downtrend that we highlighted last week. In our 3/24/20 Compass we noted the potential for a snap-back rally and that a break above this downtrend, specifically above 2,350-2,370, would help give us confidence that an initial/primary low has been made. This is exactly what transpired intraday on 3/24. Now that the initial/primary low has been established and with the S&P 500 roughly 20% off the lows, we believe it is time to map out potential areas where this rally could run into resistance. After this type of major waterfall decline there is often a test of the initial low - and there is often an undercut of the initial low. Barring approval of a first-line therapy for COVID-19 (chloroquine/hydroxychloroquine?) we are of the belief that a test of this initial low (likely 2-12 weeks out) and potentially an undercut of roughly 10% are likely.

· S&P 500 Levels. We believe the 2,637-2,740 zone on the S&P 500 is an area that this rally could run into resistance. This also coincides with resistance at the 200-week MA of 2,646. 2,855-2,900 is another area we see resistance.... see chart below and page 4.

· Multiple 15-25% Bear Market Rallies Not Uncommon. Multiple 15-25% rallies are par for the course in bear markets. In 2008-2009, the bear market contained four separate rallies ranging from 16-24% off the lows, all of which went on to make new lows. In 2001-2002, there were two rallies of 21% and 24% off the lows that each failed and went on to make new lows. When the triple bottom took hold in late 2002-2003, it consisted of two subsequent 24% rallies before the final test of the low in March 2003. If history rhymes it would suggest at least one test or undercut of the initial low from last week is likely.

· Sector Relative Strength Rankings & Weighting Recommendations. Since making the initial low on 3/23, the top-performing GICS Sectors have been Utilities (XLU) and Real Estate (XLRE) while beaten-down areas like small-caps (IWM), Transports (IYT), Energy (IEO), and retail (XRT) underperform. This type of positioning does not engender confidence that the market has bottomed, but rather it suggests investors are still bracing for further declines... see pages 2-3.

· % of S&P 500 Stocks Above Their 200-Day MAs: Today vs. 2009 Lows. The % of S&P 500 stocks above their 200-day MAs sits at 10%. As we have said it would take a thrust above the 15-20% level and/or a bullish divergence in order for breadth improvement to be at a point where we would believe a true bottom is taking hold
Underlyings
Advanced Micro Devices Inc.

Advanced Micro Devices is a semiconductor company. The company primarily provides x86 microprocessors, as standalone devices or as incorporated into an accelerated processing unit, chipsets, graphics processing units (GPUs), data center and personnel GPUs, and development services; server and embedded processors, semi-custom System-on-Chip products, development services and technology for game consoles. The company also licenses portions of its intellectual property portfolio. The company's segments are: Computing and Graphics, which consists of desktop, notebooks, commercial, and chipsets products; and Enterprise, Embedded and Semi-Custom, which includes server processors, and embedded P\processors products.

BioMarin Pharmaceutical Inc.

BioMarin Pharmaceutical is a biotechnology company that develops and commercializes therapies for people with serious and life-threatening rare diseases and medical conditions. The company's commercial products are Aldurazyme (laronidase) for Mucopolysaccharidosis I; Brineura (cerliponase alfa) for the treatment of late infantile neuronal ceroid lipofuscinosis type 2; Kuvan (sapropterin dihydrochloride) for the treatment of phenylketonuria; Naglazyme (galsulfase) the treatment of Mucopolysaccharidosis VI ; Palynziq (pegvaliase-pqpz) for adult patients with phenylketonuria; and Vimizim (elosulfase alpha) for the treatment of Mucopolysaccharidosis IV Type A.

Bristol-Myers Squibb Company

Bristol-Myers Squibb is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products. The company's products are sold worldwide, primarily to wholesalers, specialty distributors, retail pharmacies, hospitals, government entities and the medical profession. The company manufactures products in the United States and Puerto Rico and has manufacturing operations in two foreign countries. The company has products in the following therapeutic classes: hematology, oncology, cardiovascular and immunology. The company's pharmaceutical products include chemically-synthesized or small molecule drugs and products produced from biological processes, called biologics.

CACI International Inc Class A

CACI International is a holding company. Through its subsidiaries, the company is a provider of information solutions and services to the United States government. The company's information solutions and services support national security missions and government modernization/transformation for intelligence, defense, and federal civilian customers. The company provides its services and solutions to its domestic customers in the following market areas, among others: business systems, command and control, communications, cyber security, enterprise information technology (IT), health, and intelligence services. The company's international operations provide a mix of IT services and proprietary data and software products.

Cytosorbents

Cytosorbents is engaged in critical care immunotherapy, investigating and commercializing its CytoSorb blood purification technology to reduce uncontrolled inflammation in hospitalized patients around the world, to prevent or treat multiple organ failure in life-threatening illnesses and cardiac surgery. CytoSorb, the company's primary product, is approved in the European Union as an extracorporeal cytokine filter and is designed to reduce the cytokine storm that could otherwise cause massive inflammation, organ failure and death in common critical illnesses such as sepsis, burn injury, trauma, lung injury, and pancreatitis. CytoSorb is used during and after cardiac surgery.

Entegris Inc.

Entegris is a developer, manufacturer and supplier of microcontamination control products, chemicals and materials handling solutions for manufacturing processes in the semiconductor and other industries. The company has three segments: Specialty Chemicals and Engineered Materials, which provides process chemistries, gases, and materials; Microcontamination Control, which provides solutions to filter and purify liquid chemistries and gases used in semiconductor manufacturing processes and other industries; and Advanced Materials Handling segment, which develops solutions to monitor, protect, transport, and deliver liquid chemistries, wafers and substrates.

Exelixis Inc.

Exelixis is an oncology-focused biotechnology company that involved in the discovery, development and commercialization of new medicines for cancers. The company's marketd products are: CABOMETYX? (cabozantinib) tablets for renal cell carcinoma and previously treated hepatocellular carcinoma; and COMETRIQ? (cabozantinib) capsules for progressive, metastatic medullary thyroid cancer. The company's products resulting from its discovery efforts are: COTELLIC? (cobimetinib), an inhibitor of MEK approved as part of a combination regimen to treat melanoma; and MINNEBRO? (esaxerenone), an oral, non-steroidal, selective blocker of the mineralocorticoid receptor approved for the treatment of hypertension in Japan.

ExOne Co

The ExOne is a provider of three-dimensional (3D) printing machines and 3D printed and other products, materials and services to industrial customers. The company's business primarily consists of manufacturing and selling 3D printing machines and printing products. The company provides pre-production collaboration and print products for customers through its network of production service centers and ExOne adoption centers. The company also supplies the associated materials, including consumables and replacement parts, and other services, including training and technical support that is necessary for purchasers of the company's 3D printing machines to print products.

Five9 Inc.

Five9 is a provider of cloud software for contact centers. The company's Virtual Contact Center (VCC), cloud platform and applications, allows simultaneous management and optimization of customer interactions across voice, chat, email, web, social media and mobile channels, either directly or through its application programming interfaces. The company's VCC cloud platform matches each customer interaction with an appropriate agent resource and delivers customer data to the agent in real-time through integrations with adjacent enterprise applications, such as customer relationship management software. The company provides its solution through a software-as-a-service business model with recurring subscriptions.

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.

IEX Group

Iex Group NV. IEX Group NV is a company based in the Netherlands that provides online content for investors. It operates IEX.nl, Belegger.nl, DeBeurs.nl, Eurobench.nl, Participaties.nl, Beursduivel.be and iexprofs.nl.

Koninklijke Philips

Linde plc

Prestige Consumer Healthcare Inc

Prestige Consumer Healthcare is a holding company. Through its subsidiaries, the company develops, manufactures, markets, sells and distributes over-the-counter (OTC) healthcare products to mass merchandisers and drug, food, dollar, convenience, and club stores in North America (the U.S. and Canada) and in Australia and certain other international markets. The company's portfolio of OTC Healthcare products includes, among others, DenTek oral care products, Monistat women's health products, Nix lice treatment products, Chloraseptic sore throat treatments, Clear Eyes eye care products, Compound W wart treatments, Luden's throat drops, BC and Goody's pain relievers and Debrox earwax remover.

Sanofi S.A. ADS

Silgan Holdings Inc.

Silgan Holdings is a holding company. Through its subsidiaries, the company manufactures rigid packaging for consumer goods products. The company operates three businesses; its metal container business, which used primarily by processors and packagers for food products, such as vegetables, soup, proteins, tomato based products, adult nutritional drinks and fruit ; its closures business, which manufactures metal and plastic closures and dispensing systems for food and beverage and health care products; and its plastic container business, which manufactures custom designed and stock plastic containers for personal care and health care products, including containers for mouthwash, shampoos, and conditioners.

Spirit of Texas Bancshares

Spirit of Texas Bancshares is a bank holding company. Through its subsidiary, Spirit of Texas Bank SSB, the company provides commercial and retail banking services. The company's product offerings consist of a range of commercial products, including term loans and operating lines of credit to commercial and industrial companies; commercial real estate loans; construction and development loans; Small Business Administration loans; commercial deposit accounts; and treasury management services. In addition, the company's retail offerings include consumer loans, one-to-four single family residential real estate loans and retail deposit products. The company operates in one reportable segment of business, community banking.

Twist Bioscience

Twist Bioscience is a synthetic biology company. The company is developing a disruptive DNA synthesis platform to industrialize the engineering of biology. The main of its platform is a proprietary technology that manufactures synthetic DNA by writing DNA on a silicon chip. The company has combined this technology with proprietary software, scalable commercial infrastructure and an e-commerce platform to create a technology platform. The company's offerings consists of two primary products that address different needs of its customers across a variety of applications: synthetic genes, oligonucleotide (oligo) pools, next generation sequencing tools and DNA libraries.

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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