Vermilion Compass: Weekly Equity Strategy
THEMES:Bullish big picture. Bullish yet uncomfortably above support--that's how we view the U.S. equity market. The path of least resistance remains higher, confirmed by good breadth (A-D line) and sector leadership (cyclicals), yet the S&P 500 is trading 8% above its 200-day MA, the highest reading in three years. Of course, “overbought†is a subjective term, and the rally could proceed without a pullback. But we still recommend focusing on opportunities that are just beginning to break out/bullishly inflect (e.g. health care) or are pulling back near support (e.g. energy). Our positive outlook for global equities remains intact, and we view weakness as a buying opportunity.
Stay overweight cyclicals. No changes here--cyclical sectors continue to top our weekly relative strength rankings. Consumer Discretionary remains the one ongoing exception; leadership is sparse within this Sector, and we recommend a selective, bottom-up approach, focusing on areas like homebuilders, casinos, cruises, and hotels & resorts.
Upgrading Health Care. We are upgrading the Sector to market weight from underweight. Not only is relative strength stabilizing at long-term support and breadth expanding, but our weekly review of the S&P 500, 400, and Russell 2000 constituents continues to reveal a dramatic uptick in the number of bullish patterns throughout this Sector. In today's report we highlight a selection of actionable small caps... see pages 2-5, 9-19
What to do about Energy? Energy, a “non-participant†in the market's advance to new highs, is testing a key support level. As WTI churns above support, the XLE is pulling back to its 200-day MA. Names like COP, EOG, and MRO depict similar set-ups. At this point, we view this as a buying opportunity. However, if this support level fails to hold, we will be forced to alter our outlook, including downgrading the Sector.
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Aerie Pharmaceuticals is an ophthalmic pharmaceutical company focused on the discovery, development and commercialization of therapies for the treatment of open-angle glaucoma and other diseases of the eye. The company has an approved product, Rhopressa? and advanced-stage product candidate, Roclatan?, which both are designed to reduce elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension. The company is also developing two preclinical sustained-release implants focused on retinal diseases, which include AR-13503 for the treatment of wet age-related macular degeneration and related diseases of the retina; and AR-1105, a preclinical dexamethasone steroid implant.
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.
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