Vermilion Compass: Weekly Equity Strategy
Russell 2000 With Bullish Breadth DivergencesOur expectations since late September remain unchanged; equities are not yet out of the woods, but as long as the S&P 500 is above 4165-4200 and the 200-day MA, we are bullish, as most signs point to this being a normal pullback within the ongoing bullish trend in SPX. As discussed in last week's Compass (10/11/23), we have growing confidence that the lows are likely in on the SPX, which made a low at 4216 (with 4200 hit exactly overnight 10/4/23).
Russell 2000 With Bullish Breadth Divergences. Last week we discussed how the Russell 2000's % of stocks above their 50- and 200-day MAs showed signs of bottoming. Now, both of these breadth metrics display bullish divergences, where the Russell 2000 made a new closing low relative to early-October, but the % of stocks above their 50- and 200-day MAs has made a higher low. While breadth could go on to break to new lows, for now this points to underlying breadth improvement, which is a bullish sign... see charts below.
S&P 500, Nasdaq 100, Russell 2000 Above Supports. 4325-4335 is short-term support on SPX; IF above 4325, a test of the multi-month downtrend at 4450-4480 is likely. The Nasdaq 100 (QQQ) held at critical $355 support, and is now testing the multi-month downtrend at ~$375; this is logical resistance, but monitor for a breakout. The Russell 2000 (IWM) is consolidating between support at $170 and resistance at $180... see page 3.
Big Picture Trends. We are monitoring the downtrends from the July highs in the Nasdaq 100 (QQQ) and PHLX Semiconductor (SOXX); they can also be seen as bullish flag patterns. Cap- and equal-weighted Consumer Discretionary vs. Staples ratios (XLY vs. XLP and RSPD vs. RSPS) both hit 1.5+ year highs last week -- clear risk-on behavior. MSCI EM (EEM) displays a 2.5-month downtrend reversal after bouncing at $37 support. Equal-weighted retail (XRT) is back to test 1.5-year support at $56-$57.50... see pages 4-5.
Lows Likely in on S&P 500. A condensed recap of what we discussed in last week's Compass, which leads us to believe the SPX lows are in: (1) countless supports are holding, (2) commodity prices appear to be rolling over, (3) 1- and 2-year Treasury yields have not broken out, (4) the U.S. dollar (DXY) could be topping if it breaks below $105.70, (5) defensive Sectors remain at YTD RS lows, and (6) breadth is likely bottoming-out. These all remain true, and we are constructive as long as there are no changes.
Aflac, through its subsidiaries, provides financial protection to people worldwide. The company's principal business is supplemental health and life insurance products. The company's insurance business consists of two reporting segments: Aflac Japan, which are designed to help consumers pay for medical and nonmedical costs that are not reimbursed under Japan's national health insurance system; and Aflac U.S., which the insurance products to provide supplemental coverage for people who already have primary medical or primary insurance coverage. The Aflac Japan's insurance products includes of cancer insurance, and medical insurance; and Aflac U.S. products includes of accident insurance, among others.
American International Group is a holding company. Through its subsidiaries, the company provides a range of property casualty insurance, life insurance, retirement solutions, and other financial services. The company's businesses include General Insurance, which provides insurance products and services for commercial and personal insurance customers; Life and Retirement, which brings together a portfolio of life insurance, retirement and institutional products provided through a multichannel distribution network; and Other Operations, which include Blackboard U.S. Holdings, Inc., a subsidiary focused on delivering commercial insurance solutions using digital technology, data analytics and automation.
AmerisourceBergen is a pharmaceutical sourcing and distribution services company. The company's Pharmaceutical Distribution Services reportable segment provides pharmaceutical distribution and additional services to physicians who focus on a variety of disease states, especially oncology, and to other healthcare providers, including hospitals and dialysis clinics. Additionally, this segment provides data analytics, outcomes research, and additional services for biotechnology and pharmaceutical manufacturers. This segment also provides pharmacy management, staffing and additional consulting services, and supply management software to a variety of retail and institutional healthcare providers.
Cardinal Health is a healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. The company's segments include: Pharmaceutical and Medical. The company's Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. The company's Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets.
CNO Financial Group is a holding company for a group of insurance companies. The company's Bankers Life segment underwrites, markets and distributes Medicare supplement insurance, interest-sensitive life insurance, life insurance, fixed annuities and long-term care insurance products. The company's Washington National segment underwrites, markets and distributes supplemental health and life insurance to middle-income consumers at home and at the worksite. The company's Colonial Penn segment markets primarily graded benefit and simplified issue life insurance directly to customers in the senior middle-income market through television advertising, direct mail, the internet and telemarketing.
Fairfax Financial Holdings is a financial services holding company. Through its subsidiaries, Co. is engaged in property and casualty insurance and reinsurance and investment management. Co.'s insurance and reinsurance companies operate on a decentralized basis, with autonomous management teams applying a focused underwriting strategy to their markets. Co.'s investments are centrally managed for all the Co.'s group of companies by Hamblin Watsa Investment Counsel Ltd. Co. operates four main operating segments: Insurance, Reinsurance, Reinsurance and Insurance - Other, and Runoff.
Lincoln National operates multiple insurance and retirement businesses through its subsidiary companies. The company provides products and services through four segments as follows: Annuities, which provides tax-deferred investment growth and lifetime income opportunities for its clients by providing variable annuities, fixed annuities and indexed variable annuities; Retirement Plan Services, which provides employers with retirement plan products and services, primarily in the defined contribution retirement plan marketplace; Life Insurance, which focuses on the creation and protection of wealth for its clients; and Group Protection, which provides group non-medical insurance products.
Loews is a holding company and has five reportable segments comprised of four individual operating subsidiaries: CNA Financial Corporation, which provides commercial property and casualty coverages; Diamond Offshore Drilling, Inc., which provides contract drilling services to the energy industry; Boardwalk Pipeline Partners, LP, which is engaged in the business of natural gas and natural gas liquids and hydrocarbons transportation and storage; Loews Hotels Holding Corporation, which operates a chain of hotels; and the Corporate segment, which includes the operations of Altium Packaging LLC, which is a packaging solutions provider and manufacturer in North America.
McKesson provides pharmaceuticals and medical supplies and services to its customers. The company's segments include: U.S. Pharmaceutical and Specialty Solutions, which provides distribution and logistics services for branded, generic, specialty, biosimilar and over-the-counter pharmaceutical drugs and other healthcare-related products to customers; European Pharmaceutical Solutions, which provides distribution and services to wholesale, institutional and retail customers in European countries where it owns, partners or franchises with retail pharmacies; and Medical-Surgical Solutions, which delivers medical-supply distribution, logistics, biomedical and other services to healthcare providers.
MetLife, through its subsidiaries and affiliates, provides insurance, annuities, employee benefits and asset management. The company's segments include: United States; Asia; Latin America; Europe, the Middle East and Africa; and MetLife Holdings. In the United States, the company provides a variety of insurance and financial services products, including life, dental, disability, property and casualty, guaranteed interest, stable value and annuities to both individuals and groups. Outside the United States, the company provides life, medical, dental, credit and other accident and health insurance, as well as annuities, endowment and retirement and savings products to both individuals and groups.
Prudential Financial is a holding company. Through its subsidiaries and affiliates, the company provides a range of financial products and services, including life insurance, annuities, retirement-related products and services, mutual funds and investment management. The company provides these products and services to individual and institutional customers. The company's principal operations are comprised of PGIM (its global investment management business), its United States Businesses (consisting of its United States Workplace Solutions, United States Individual Solutions, and Assurance IQ divisions), its International Businesses, the Closed Block division and its Corporate and Other operations.
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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