Vermilion Compass: Weekly Equity Strategy
Rotation is creating opportunitiesThe past week, which has produced plenty of the-last-shall-be-first trading action, has generated a growing list of opportunities, and a handful of red flags.
Bad-ish news first.
Tech and FANG have become the short-term source of funds. Blame it on the Sector's “extended†status, the lack of benefits for Tech in the tax bill, or a combination—either way, short-term trends are damaged. That said, the Sector's long-term trends remain intact, both from a price and relative strength perspective. Accordingly, given that Tech stocks are stuck between confirmed short-term weakness and unconfirmed long-term breakdowns, we see it as premature to downgrade the Sector, even though it will likely struggle in the near-term as rotation favors value. We remain overweight until its relative strength trend breaks down. In the meantime, however, look to other Sectors, highlighted below, for better opportunities.
And now to the good news—of which there is still plenty on the technical front.
Rotation is generating opportunities in many once-lagging Sectors and Groups. Chief among these are banks, energy, retail, and transports. All four exhibit bullishly inflecting relative strength trends. All four are buys. With the exception of Transports, we have recommended these Groups/Sectors in Insights reports throughout November (Energy: Nov. 2; Retailers: Nov. 29; Banks: Nov. 30).
Elsewhere, bullish inflections are also visible in other cyclical Groups like steel (NUE, RS, STLD), select restaurants (EAT, DNKN, DRI, WEN), and Engineering & Construction (JEC, ACM, GVA).
In conclusion, given that Tech's weakness is not spreading, but instead being absorbed by other Sectors, our bullish outlook remains intact. For actionable charts, see pages 8-21.
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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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