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Vermilion Compass: Weekly Equity Strategy

THEMES:

Same Story: bullish long-term, muddled short-term. Allowing for occasional backing and filling, the primary trend remains bullish, and we see many technical reasons for optimism. Chief among these:

o Good breadth: No changes here--the Russell 1000's advance-decline line continues to point upward. Negative divergences are absent... see page 2

o Cyclical Sectors & Groups: Despite short-term weakness, cyclicals still present the best long-term trends, especially Manufacturing (all-time RS highs), Tech, Financials, and Materials... see pages 2-4

o Energy: Buy. Energy stocks are bullishly inflecting, many of them bouncing off 200-day MAs. We're staying at market weight until relative strength breaks out above its 200-day MA... see page 5

o Latent strength in retailers: Retailers continue to lag, but breadth (finally) depicts improvement. Most notably, the percent of stocks in the Retail ETF (XRT) trading above their 50-day moving average is expanding ahead of price. The indicator is making higher lows while the ETF creates new lows--a bullish divergence. Also, technically mugged names like DDS, GPS, and WSM are stabilizing above secular support levels. This is not a recommendation to add new, broad exposure to retailers; these observations simply point to improving market conditions... see page 6.

Secular base patterns: Monthly (and weekly) charts are the antidote to “short-term-ism.” They provide context and, more importantly, keep you on the right side of the long-term trend. In this week's report, we highlight a bottom-up selection of stocks breaking out from (or pulling back to) long-term base patterns. When coupled with confirming relative strength trends, these are the names we want to own... see pages 7-22

o Charts highlighted: AGCO, AMED, AMKR, AOBC, ASTE, CSCO, DE, EXPD, GLW, GS, GT, GVA, HOFT, HOLX, IDTI, ITRI, JBL, LPNT, MDSO, MTG, NCI, NUE, NXTM, ON, OSK, QRVO, QVCA, SCCO, SPTN, SYMC, and XLNX.



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