Report
Dave Nicoski ...
  • Ross LaDuke
EUR 238.68 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

S&P 500 testing YTD lows

The S&P 500 remains on shaky ground, recently slicing through 2,600, and now testing YTD lows. We view the YTD lows (~2,530) as an important area of support and some sort of a bounce, or at least a pause, is to be expected. The question is whether this level ultimately holds. Our outlook remains cautious and we put a high probability on a breakdown to new lows given weak longer-term internals and continued leadership of defensive Sectors, while banks and small-caps are hitting new price and RS lows. Some clarity on Fed policy should come on Wednesday, and may provide a measure of stability to otherwise anxious markets.

• Sector Relative Strength Rankings (RSRs) & Weighting Recommendations. The top of our rankings continue to be dominated by defensive Sectors, pointing to an unhealthy market. Many Utility stocks have pulled back to more favorable levels after being extended. Use recent weakness to begin adding exposure... see page 2.

• Market internals suggest potential for near-term bounce. The percentage of stocks above their 50-day moving average within the S&P 500 leads us to believe the market is oversold on a near-term basis. However, on a long-term basis (percentage of stocks above their 200-day moving average) we have not yet reached oversold extremes, signaling the potential for more downside in the coming weeks. Additionally, the advance-decline (A/D) line remains in congestion... see page 3.

• High yield spread over 10-year Treasury continues to widen. This remains a concern of ours. The market will have a hard time finding a bottom if high yield spreads continue to widen... see chart below, left.

• Emerging markets (EEM), PHLX Semiconductor index. These two risk-on areas of the market are showing signs of RS bottoms, providing a glimmer of hope for the broad market... see page 4.

In today's report we highlight attractive Groups within Materials and Utilities... see pages 9-22.
Underlyings
Agnico Eagle Mines Limited

Agnico-Eagle Mines is a gold mining company with mining operations in Canada, Mexico and Finland. Co. earns a proportion of its revenues from the production and sale of gold in both dore bar and concentrate form. The remainder of revenue and cash flow is generated by the production and sale of byproduct metals. The revenue from byproduct metals is mainly generated by production at the LaRonde mine in Canada (silver, zinc, copper and lead) and the Pinos Altos mine in Mexico (silver).

Ameren Corporation

Ameren is a public utility holding company. Through its subsidiary, Union Electric Company, the company operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri. Through its subsidiary, Ameren Illinois Company, the company operates rate-regulated electric transmission, electric distribution, and natural gas distribution businesses in Illinois. Through its Ameren Transmission Company of Illinois subsidiary, the company operates a Federal Energy Regulatory Commission rate-regulated electric transmission business. The company also has other subsidiaries that conduct other activities, such as providing shared services.

Atmos Energy Corporation

Atmos Energy is engaged in the regulated natural gas distribution and pipeline and storage businesses. The company delivers natural gas through regulated sales and transportation arrangements to residential, commercial, public-authority and industrial customers. The company's segments are: Distribution, which is comprised of its regulated natural gas distribution and related sales operations; and Pipeline and Storage, which consists of the pipeline and storage operations of its Atmos Pipeline-Texas Division (APT) and its natural gas transmission operations in Louisiana. APT has intrastate pipeline operations in Texas with a focus on the natural gas-producing areas of central, northern and eastern Texas.

Barrick Gold Corporation

Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development. Co. also produces copper and hold interests in oil and gas properties located in Canada. Co.'s mining operations are concentrated in three regional business units: North America, South America and Australia Pacific. Co. also hold a 73.9% equity interest in African Barrick Gold plc that owns gold mines and exploration properties in Africa. Co.'s copper business unit contains producing copper mines located in Chile and Zambia; and a mine under construction located in Saudi Arabia.

Black Hills Corporation

Black Hills is a utility holding company, which operates in four segments: Electric Utilities, which generates, transmits and distributes electricity to electric utility customers in Colorado, Montana, South Dakota and Wyoming; Gas Utilities, which serves natural gas utility customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming; Power Generation, which produces electric power from its wind, natural gas and coal-fired generating plants and sells the electric capacity and energy primarily to its utilities under long-term contracts; and Mining, which produces coal at its mine near Gillette, WY, and sells it under long-term contracts to mine-mouth electric generation facilities.

Chesapeake Utilities Corporation

Chesapeake Utilities is an energy company engaged in regulated and unregulated energy businesses. The company operates within two segments: Regulated Energy and Unregulated Energy. The company's regulated energy businesses consist of: regulated natural gas distribution operations; regulated natural gas transmission operations; and regulated electric distribution operations. The company's unregulated energy segment includes a propane operations; its natural gas marketing operation providing natural gas supply; its unregulated natural gas transmission/supply operation; its Combined Heat and Power Plant that generates electricity and steam; and its subsidiary that provides mobile compressed natural gas utility.

CMS Energy Corporation

CMS Energy is a holding company. The company has several subsidiaries, including: Consumers Energy Company, an electric and gas utility that serves individuals and businesses operating in the alternative energy, automotive, chemical, food, and metal products industries, as well as a group of other industries; CMS Enterprises Company, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production; and EnerBank USA, an industrial bank located in Utah that provides unsecured consumer installment loans, primarily for financing home improvements.

Consolidated Edison Inc.

Consolidated Edison is a holding company. Through its subsidiaries, the company is engaged in provision of energy services. The company's subsidiaries include: Consolidated Edison Company of New York, Inc.'s principal business operations are its regulated electric, gas and steam delivery businesses; Orange & Rockland Utilities, Inc.'s principal business operations are its regulated electric and gas delivery businesses; Con Edison Clean Energy Businesses, Inc. develops, owns and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers; and Con Edison Transmission, Inc. invests in electric and gas transmission projects.

Dominion Energy Inc

Dominion Energy is a holding company. Through its subsidiaries , the company is engaged in producing and transporting energy. The company's operations are conducted through its subsidiaries: Virginia Electric and Power Company, which is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and North Carolina; and Dominion Energy Gas Holdings, LLC, which serves as the intermediate parent company for the company's Federal Energy Regulatory Commission-regulated interstate natural gas transmission pipeline and underground storage systems in the eastern and Rocky Mountain regions, as well as for the liquefied natural gas import/export and storage facility.

DTE Energy Company

DTE Energy is a holding company. The company is engaged in the generation, purchase, distribution and sale of electricity to customers in southeastern Michigan through its DTE Electric Company subsidiary, as well as in the purchase, storage, transportation, distribution and sale of natural gas throughout Michigan and the sale of storage and transportation capacity through its DTE Gas Company subsidiary. The company's non-utility operations are: gas storage and pipelines, which consists of natural gas pipeline, gathering, transportation, and storage businesses; power and industrial projects; and energy trading, which consists of energy marketing and trading operations.

Exelon Corporation

Exelon is a utility services holding company engaged in the generation, delivery and marketing of energy through Exelon Generation Company, LLC and the energy distribution and transmission businesses through Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Potomac Electric Power Company, Delmarva Power & Light Company and Atlantic City Electric Company. Through its business services subsidiary Exelon Business Services Company, LLC, the company provides its subsidiaries with a variety of support services.

Franco-Nevada Corporation

Franco-Nevada is a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil and gas and other resource assets located in the U.S., Canada, Mexico, Peru, Chile and Africa. Co.'s portfolio includes 340 mineral and oil and gas assets covering properties at various stages from production to early stage exploration.

Market Vectors Junior Gold Miners ETF

MGE Energy Inc.

MGE Energy is a public utility holding company. Operating through its subsidiaries, the company has five business segments: regulated electric utility operations, which generates, purchases, and distributes electricity through its subsidiary, Madison Gas and Electric Company (MGE); regulated gas utility operations, which purchases and distributes natural gas through MGE; nonregulated energy operation, which owns and leases electric generating capacity that assists MGE through the company's wholly owned subsidiaries MGE Power Elm Road, LLC and MGE Power West Campus, LLC; and transmission investments, which represents the company's investment in American Transmission Company LLC and ATC Holdco, LLC.

New Jersey Resources Corporation

New Jersey Resources is an energy services holding company whose principal business is the distribution of natural gas through a regulated utility, providing other retail and wholesale energy services to customers and investing in clean energy projects and midstream assets. The company's segments are: Natural Gas Distribution, which consists of regulated natural gas services, off-system sales, capacity and storage management operations; Clean Energy Ventures, which consists of capital investments in clean energy projects; Energy Services, which consists of unregulated wholesale and retail energy operations; and Midstream, which consists of investments in the midstream natural gas market.

NiSource Inc

NiSource is an energy holding company. Through its subsidiaries, the company is a natural gas distribution company. The company's reportable segments are: Gas Distribution Operations and Electric Operations. For its gas distribution operations, through its wholly-owned subsidiary, NiSource Gas Distribution Group, Inc., the company owns distribution subsidiaries that provide natural gas to residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Massachusetts. Through its electric operations, the company generates, transmits and distributes electricity through its subsidiary, Northern Indiana Public Service Company LLC, and engages in wholesale and transmission transactions.

Public Service Enterprise Group Inc

Public Service Enterprise Group, through its subsidiaries, is engaged in the energy industry. The company conducts its business through two subsidiaries, Public Service Electric and Gas Company (PSE&G) and PSEG Power LLC (PSEG Power). PSE&G is a public utility, which is engaged in the transmission of electricity and distribution of electricity and natural gas in certain areas of New Jersey; and PSEG Power is a multi-regional energy supply company that integrates the operations of its merchant nuclear and fossil generating assets with its power marketing businesses and fuel supply functions through energy sales in energy markets primarily in the Northeast and Mid-Atlantic United States.

Puxin ADS (N Shares)

Spire Inc.

Spire is the holding company for Spire Missouri Inc. (Spire Missouri), Spire Alabama Inc. (Spire Alabama), other gas utilities, and gas-related businesses. The company's segments are: Gas Utility, which includes Spire Missouri, a natural gas distribution utility system in Missouri, and Spire Alabama, a public utility engaged in the purchase, retail distribution and sale of natural gas principally in central and northern Alabama; and Gas Marketing, which includes the company's subsidiary, Spire Marketing Inc. that is engaged in the marketing of natural gas and providing energy services to both on-system utility transportation customers and customers outside of the service areas.

UGI Corporation

UGI is a holding company. Through its subsidiaries and affiliates, the company distributes, stores, transports and markets energy products and related services. The company's segments are: AmeriGas Propane, which distributes propane and sells, installs, and services propane appliances, including heating systems; UGI International, which includes liquefied petroleum gas distribution businesses and energy marketing business; Midstream and Marketing, which includes energy-related businesses that conduct energy marketing in the Mid-Atlantic region of the United States; and UGI Utilities, which consists of the regulated natural gas distribution businesses and the regulated electric distribution business.

VanEck Vectors Gold Miners ETF

WEC Energy Group Inc

WEC Energy Group is a holding company. Through its subsidiaries, the company provides regulated natural gas and electricity, and nonregulated renewable energy. The company's segments include: Wisconsin, which generates and distributes electric energy and provides retail natural gas distribution service; Illinois, which includes the natural gas utility operations; Electric Transmission, which owns, maintains, monitors, and operates electric transmission systems in Wisconsin, Michigan, Illinois, and Minnesota; and Non-Utility Energy Infrastructure, which owns and leases generating facilities to its Wisconsin Electric Power Company subsidiary and owns underground natural gas storage facilities in Michigan.

Xcel Energy Inc.

Xcel Energy is a regulated electric and natural gas delivery company which serves customers in mid-western and western states, including portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. The company's reportable segments include: regulated electric utility, which generates, transmits and distributes electricity in Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico; regulated natural gas utility, which transports, stores and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado; and other, which includes steam revenue and appliance repair services.

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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