Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.72 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Downgrading Real Estate to Underweight

Our bullish outlook we initiated on November 7, 2023 remains intact; this intermediate-to-long-term outlook is likely to stay in place as long as 4800 support holds on the S&P 500 (implying 7-10% downside) and market dynamics remain healthy. To be clear, we are not calling for a pullback to 4800; we view it as a worst-case scenario for the S&P 500, and we simply want to be prepared for anything. Shorter-term, we remain bullish on the S&P 500 and Nasdaq 100 (QQQ) as they both refuse to close below their 20-day MAs for more than 2-3 consecutive days. If we do get 2-3 closes below the 20-day MAs on the S&P 500 and QQQ, it would mark the beginning of a pullback, with next supports at 4983-5050 on the S&P 500 and $425-$433 on QQQ (gap supports from 2/22/24). A break below 4983 on the S&P 500 would be needed for us to have any confidence that it could visit 4800 again.

Downgrading Real Estate to Underweight. While price on the Real Estate Sector (ETFs: XLRE, RSPR) remains constructive, relative strength (vs. S&P 500) is breaking to new lows. We are downgrading the Sector to underweight -- reduce exposure... see chart below.
Treasury Yields, U.S. Dollar (DXY). 2-, 5-, 10-, and 30-year Treasury yields all remain below important resistances of 4.77%, 4.49%, 4.35%, and 4.50%, respectively. The U.S. dollar (DXY) is below the major $106 level, and is also below shorter-term resistance at $104.70. As long as Treasury yields and the DXY remain below resistance, it is a clear risk-on signal for the broad equity market... see pages 3-4.
More Risk-On Signals. NYSE daily Net New Highs surpassed the prior high from December 4, 2023; breadth remains healthy and this bull market is broadening-out. S&P Mid-Cap 400 (IJH) is hitting all-time highs as it held above $58 base support. Mid-caps (and likely small-caps) continue to form potential major RS bottoms. Travel Tech (AWAY) is breaking out from a 2-year base, joining other areas we remain bullish on, including Fintech (ARKF), Next-Gen Internet (ARKW), IPOs (IPO), and Online Retail (IBUY). High yield spreads are at fresh 2+ year narrows. Defensive Sectors including Staples (XLP), Utilities (XLU), and Health Care (XLV) are at 10+ year RS lows. Bond market volatility (MOVE index) is at 2-year lows. These are all risk-on signals that lead us to believe any pullback in the S&P 500 is likely to present a buying opportunity
Underlyings
AECOM

AECOM designs, builds, finances and operates infrastructure assets for governments, businesses and organizations. The company provides: planning, consulting, architectural and engineering design services to commercial and government clients in transportation, facilities, environmental, energy, water and government markets; construction services, including building construction and energy, infrastructure and industrial construction; as well as program and facilities management and maintenance, training, logistics, consulting, technical assistance, and systems integration and information technology services, for agencies of the United States government and for other national governments.

ALTA EQUIP GROUP INC

ARCADIS N.V.

Argan Inc.

Argan is a holding company. The company conducts operations through its subsidiaries: Gemma Power Systems, LLC, which is an engineering, procurement and construction contractor; Atlantic Projects Company Limited, which provides turbine, boiler and rotating equipment installation, commissioning and outage services; The Roberts Company, Inc., which provides on-site services that support maintenance, shutdowns and emergency mobilizations for industrial plants in the southern region of the U.S.; and Southern Maryland Cable, Inc., which conducts business as SMC Infrastructure Solutions, and provides technology wiring and utility construction solutions to customers in the mid-Atlantic region of the U.S.

BWX Technologies Inc.

BWX Technologies is a manufacturer of nuclear components, a developer of nuclear technologies and a service provider. The company operates three segments: Nuclear Operations Group, which engineers, designs and manufactures precision naval nuclear components, reactors and nuclear fuel for the U.S. Department of Energy/National Nuclear Security Administration's Naval Nuclear Propulsion Program; Nuclear Services Group, which provides services including nuclear materials processing and management and operating services; and Nuclear Power Group, which designs and manufactures commercial nuclear steam generators, heat exchangers, pressure vessels, reactor components and other auxiliary equipment.

Construction Partners

Construction Partners is a holding company. Through its wholly owned subsidiaries, the company provides a variety of products and services to infrastructure projects, with a focus on highways, roads, bridges, airports, and commercial and residential sites. The company's primary operations consist of manufacturing and distributing hot mix asphalt (HMA), paving activities, including the construction of roadway base layers and application of asphalt pavement, site development, including the installation of utility and drainage systems, mining aggregates, such as sand and gravel, that are used as raw materials in the production of HMA, and distributing liquid asphalt cement in connection with HMA production.

Dycom Industries Inc.

Dycom Industries is a provider of specialty contracting services. The company supplies telecommunications providers with a portfolio of specialty services, including program management; planning; engineering and design; aerial, underground, and wireless construction; maintenance; and fulfillment services for telecommunications providers. Additionally, the company provides underground facility locating services for various utilities, including telecommunications providers, and other construction and maintenance services for electric and gas utilities. The company supplies the labor, tools, and equipment necessary to provide these services to its customers.

EMCOR GROUP

EMCOR Group is an electrical and mechanical construction and facilities services firm. In addition, the company provides building services and industrial services. The company's services are provided to its customers through its operating subsidiaries and joint venture entities. The company engages in providing construction services relating to electrical and mechanical systems in various types of facilities and in providing various services relating to the operation, maintenance and management of facilities. The company also provides its construction services indirectly by acting as a subcontractor to general contractors, systems suppliers, construction managers, developers, property managers and other subcontractors.

Granite Construction Incorporated

Granite Construction is a holding company, which delivers infrastructure solutions for public and private clients. The company's segments are: Transportation, which focuses on construction and rehabilitation of roads, pavement preservation, bridges, rail lines, airports and marine ports; Water, which focuses on water-related construction and water management solutions; Specialty, which focuses on construction of various complex projects including infrastructure/site development, mining, public safety, tunnel and power projects; and Materials, which focuses on production of aggregates, asphalt and construction related materials as well as proprietary sanitary and storm water rehabilitation products.

H&E Equipment Services Inc.

H&E Equipment Services is an equipment services company focused on heavy construction and industrial equipment. The company rents, sells and provides parts and services support for four main categories of equipment: hi-lift or aerial work platform equipment; cranes; earthmoving equipment; and industrial lift trucks. The company engages in five principal business activities in these equipment categories which include equipment rentals; new equipment sales; used equipment sales; parts sales; and repair and maintenance services. In addition to its principal business activities, the company provides ancillary equipment support activities including transportation, hauling, parts shipping and loss damage waivers.

Herc Holdings Inc.

Herc Holdings is an equipment rental supplier. The company conducts its operations through subsidiaries, including Herc Rentals Inc. Operations are conducted under the Herc Rentals brand in the U.S. and Canada and under the Hertz Equipment Rental brand in other international locations. The company sells used equipment and contractor supplies such as construction consumables, tools, small equipment and safety supplies; provides repair, maintenance and equipment management services and safety training to certain of its customers; provides equipment re-rental services and provides on-site support to its customers; and provides ancillary services such as equipment transport, cleaning, refueling and labor.

IES Holdings Inc.

IES Holdings is a holding company. The company has four business segments: Commercial & Industrial, which provides electrical and mechanical design, construction, and maintenance services to the commercial and industrial markets in various regional markets and nationwide in certain areas such as the power infrastructure market; Communications, which provides technology infrastructure services to corporations and independent businesses; Infrastructure Solutions, which provides electro-mechanical solutions for industrial operations; and Residential, which provides electrical installation services for single-family housing and multi-family apartment complexes.

JACOBS SOLUTIONS INC.

KBR Inc.

KBR provides services and technologies across the asset and program life-cycle within the government services and hydrocarbons industries. The company has three segments: Government Solutions, which provides life-cycle support solutions to defense, space, aviation and other programs and missions for military and other government agencies; Technology Solutions, which combines technologies, equipment and catalyst supply, digital solutions and associated knowledge-based services into a global business for refining, petrochemicals, inorganic and specialty chemicals; and Energy Solutions, which provides life-cycle support solutions across the upstream, midstream and downstream hydrocarbons markets.

MasTec Inc.

MasTec is an infrastructure construction company operating mainly throughout North America across a range of industries. The company's segments include: Communications, which performs engineering, construction, maintenance and customer fulfillment activities related to communications infrastructure; Oil and Gas, which performs engineering, construction and maintenance services on oil and natural gas pipelines and processing facilities; Electrical Transmission, which performs engineering, construction and maintenance of electrical transmission lines and substations; and Power Generation and Industrial, which performs installation and construction of power facilities.

Matrix Service Company

Matrix Service provides engineering, fabrication, infrastructure, construction, and maintenance services. The company's segments are: Electrical Infrastructure, which consists of power delivery services provided to investor owned utilities; Oil Gas and Chemical, which serves customers who are engaged in refining crude oil and processing, fractionating, and marketing of natural gas and natural gas liquids; Storage Solutions, which consists of work related to aboveground storage tanks and terminals; and Industrial, which consists of work for integrated iron and steel companies, main mining and minerals companies engaged in the extraction of copper, as well as companies in other industries.

MYR Group Inc.

MYR Group is a holding company of electrical construction service providers. Through its subsidiaries, the company serves the electric utility infrastructure, commercial and industrial construction markets located throughout the U.S. and Canada. The company manages its operations through two segments: Transmission and Distribution, which provides services on electric transmission and distribution networks and substation facilities; and Commercial and Industrial, which provides services such as the design, installation, maintenance and repair of commercial and industrial wiring, installation of traffic networks and the installation of bridge, roadway and tunnel lighting.

PRIME ENERGY P.E. LTD

Quanta Services Inc.

Quanta Services is a provider of contracting services, delivering infrastructure solutions for the electric power, energy and communications industries in the United States, Canada, Australia, Latin America and select other international markets. The company has two segments: Electric Power Infrastructure Services, which provides network solutions to customers in the electric power industry and services that support the development of renewable energy generation; and Pipeline and Industrial Infrastructure Services, which provides infrastructure solutions to customers involved in the development, transportation, distribution, storage and processing of natural gas, oil and other products.

Sterling Construction Company Inc.

Sterling Construction is a construction company that focuses in heavy civil construction and infrastructure rehabilitation as well as residential construction projects. The company operates primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas and Utah, as well as other states. The company's heavy civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems, foundations for multi-family homes, commercial concrete projects and parking structures. Residential construction projects include concrete foundations for single-family homes.

Tutor Perini Corporation

Tutor Perini is a construction company. The company operates in three segments: Civil, which focuses on public works construction and the replacement and reconstruction of infrastructure; Building, which provides services to various building markets for private and public works customers, including hospitality and gaming, transportation, health care, commercial offices, sports and entertainment, education, correctional facilities, biotech and pharmaceutical, among others; and Specialty Contractors, which focuses on electrical, mechanical, plumbing, heating, ventilation and air conditioning, fire protection systems and pneumatically placed concrete for civil and building construction projects.

United Rentals Inc.

United Rentals is an equipment rental company that operates throughout the United States and Canada, and Europe. The company's general rentals segment includes the rental of construction, aerial and industrial equipment, general tools and light equipment, and related services and activities. This segment's customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The company's trench, power and fluid solutions segment includes the rental of construction products and related services. This segment consist of: Trench Safety region, Power and Heating, Ventilating and Air Conditioning region; and Fluid Solutions and Fluid Solutions Europe regions.

Valvoline Inc.

Valvoline is a marketer and supplier of engine and automotive maintenance products and services. The company's segments are: Quick Lubes, which services the passenger car and light truck quick lube market via the company-owned, independent franchises and joint venture retail quick lube service center stores, as well as independent Express Care stores that service vehicles with the company's products; Core North America, which sells Valvoline? and other branded and private label engine and automotive maintenance products in the United States and Canada; and International, which sells Valvoline? and other branded engine and automotive products for the maintenance of consumer and commercial vehicles and equipment.

Westlake Chemical Corporation

Westlake Chemical operates as a manufacturer and marketer of basic chemicals, vinyls, polymers and building products. The company operates in two operating segments: Olefins, which manufactures and markets polyethylene, styrene monomer and various ethylene co-products; and Vinyls, which manufactures and markets polyvinyl chloride (PVC), vinyl chloride monomer, ethylene dichloride, chlor-alkali (chlorine and caustic soda), chlorinated derivative products and ethylene, as well as manufactures and sells building products fabricated from PVC, including residential siding, trim and mouldings, pipe and fittings for various water, sewer and industrial applications, and profiles for windows and doors.

Willdan Group

Willdan Group is a holding company. Through its subsidiaries, the company is a provider of technical and consulting services to utilities, private industry, and public agencies of government. The company provides services in two segments: Energy, which services include surveys, program design, master planning, benchmarking analyses, design engineering, construction management, performance contracting, installation, alternative financing, and measurement and verification services; and Engineering and Consulting, which provides civil engineering-related construction management, building and safety, city engineering, city planning, geotechnical, and other engineering consulting services to the company's clients.

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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