Report
Dave Nicoski ...
  • Ross LaDuke
EUR 240.13 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Technical indications mixed; Outlook remains cautious

Key support levels we have been monitoring (the 200-day MAs on the S&P 500 and equal-weighted S&P 500) have failed to hold, something we noted as increasingly likely in last week's Compass. Despite the break below support, the move lower has been orderly but technical indications remain mixed. The weight of the evidence leads us to remain cautious, supported by several observations highlighted below.

• U.S. dollar (USD) weakness coming? We continue to believe a weakening USD may rescue global risk assets by providing a tailwind for EM equities and the commodity structure. The euro is on the cusp of a bullish inflection topside the falling wedge as highlighted in our 5/21/19 Compass, meaning the time may be coming soon where we see the USD break down from its rising wedge pattern... see charts below.

• Defensives remain leadership; Growth vs. Value breakdown. RS for defensives including Staples (XLP), Utilities (XLU) and Real Estate (XLRE, VNQ) are hitting multi-month highs, an indication investors are expecting turbulence ahead... see pages 2-3.

• High yield spreads are surging. High yield spreads continue to widen at an alarming rate and high yield ETFs such as JNK and HYG are breaking down. This will continue to be a major problem for the equity market if current trends persist... see page 4.

• Treasury yields plunging, but 10's to 2's Treasury spread at YTD highs. We highlight a level where the plunging 10-year Treasury yield has the potential to stabilize - something that would be consistent with a bounce in the equity market. Additionally, the 10Y/2Y Treasury spread is hitting YTD highs, which is likely to be a positive for banks (more on banks below) and the economy... see page 4.

• Cyclicals at logical support. Key cyclicals including Banks (KBE, KRE), Transports (IYT), and small-caps (IWM) are certainly not attractive charts. Still, all are near potential support areas, suggesting a near-term reprieve may be forthcoming... see page 5.
In today's report we highlight attractive Groups and stocks within Materials and Financials: MA-26 & MA-27 Large-Cap and Small-Cap Gold, Western Hemisphere, and FN-40 & FN-41 Large-Cap and Small-Cap Property & Casualty Insurance... see pages 11-28.
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).

Alamos Gold Inc.

Alamos Gold is engaged in the exploration, mine development, and the mining and extraction of precious metals, primarily gold. Co.'s s primary asset is the Mulatos Mine and holds the mineral rights to the Salamandra group of concessions in the State of Sonora, Mexico, which includes several known satellite gold occurrences.

Alleghany Corporation

Alleghany is an insurance holding company. The company classifies its businesses into three reportable segments: reinsurance segment, which consists of property and casualty reinsurance operations conducted by its Transatlantic Holdings, Inc.'s reinsurance subsidiary; insurance segment, which consists of property and casualty insurance operations conducted by Alleghany Insurance Holdings LLC through RSUI Group, Inc.; and Alleghany Capital segment, which owns and manages a portfolio of middle market businesses primarily through the company's wholly-owned subsidiary, Alleghany Capital Corporation and its subsidiaries.

Allstate Corporation

Allstate is a holding company. Through its subsidiaries, the company is engaged in the property and casualty insurance business. The company's segments include: Allstate Protection, which provides private passenger auto, homeowners, other personal lines and commercial insurance; Service Businesses, which includes SquareTrade that provides consumer protection plans and related technical support; Allstate Life, which provides interest-sensitive and variable life insurance products, as well as distributes non-proprietary retirement products; and Allstate Benefits, which provides voluntary benefits products, including life, accident, critical illness, and other health insurance products.

Axis Capital Holdings Limited

B2Gold Corp.

B2Gold is a Vancouver-based gold producer with three operating mines (two in Nicaragua and one in the Philippines), a fourth mine which has entered into the commissioning and testing phase in Namibia and a portfolio of development and exploration assets in Mali, Colombia, Burkina Faso and Nicaragua. Co.'s reportable operating segments include its mining operations and development projects. The Other Mineral Properties segment consists of Co.'s interests in mineral properties which are at various stages of exploration. The Corporate and Other segment includes corporate operations and the Bellavista property in Costa Rica which is classified as held for sale.

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.

Chubb Limited

Compania de Minas Buenaventura SAA Sponsored ADR

Eldorado Gold Corp.

Eldorado Gold is engaged in the exploration, development, mining and production of gold and other mining resources in Brazil, China, Turkey and Greece.

Erie Indemnity Company Class A

Erie Indemnity is an attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange), a reciprocal insurer that writes property and casualty insurance. The company's main function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. The company also acts as attorney-in-fact on behalf of the Exchange with respect to claims handling and investment management services, as well as the service provider for the claims handling, life insurance, and investment management services for its insurance subsidiaries. The company provides policy issuance and renewal services related to the sales, underwriting and issuance of policies.

Fidelity National Financial Inc. - FNF Group

Fidelity National Financial is a provider of title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty products and transaction services to the real estate and mortgage industries. The company has two segments: Title, which consists of the operations of the company's title insurance underwriters and related businesses which provide title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, and home warranty products; and Corporate and Other, which includes the operations of the parent holding company, and the company's real estate technology subsidiaries.

First American Financial Corporation

First American Financial is a holding company. Through its subsidiaries, the company is engaged in the business of providing financial services through its segments. The title insurance and services segment issues title insurance policies on residential and commercial property; provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides access to title plant data and records; and provides appraisals and other valuation-related products and services, lien release and document custodial services, and warehouse lending services. The specialty insurance segment issues property and casualty insurance policies and sells home warranty products.

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.

Hanover Insurance Group Inc.

The Hanover Insurance Group is a holding company. Through its subsidiaries, the company business operations are property and casualty insurance products and services. The company markets its products and services through independent agents and brokers. The company conducts three operating segments: Commercial Lines, which includes commercial multiple peril, commercial automobile, workers' compensation, and other commercial coverages; Personal Lines, which includes personal automobile, homeowners, and other personal coverages; and Other, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations.

Hilltop Holdings Inc.

Hilltop Holdings is a financial holding company. The company provides business and consumer banking services from offices located throughout Texas through its subsidiary, PlainsCapital Bank. The company has three business units: PlainsCapital Corporation, which provides banking and wealth, investment and treasury management services, as well as residential mortgage loans throughout the U.S.; Hilltop Securities Holdings LLC, which provides investment banking and other related financial services; and National Lloyds Corporation, which provides fire and homeowners insurance to low value dwellings and manufactured homes primarily in Texas and other areas of the southern U.S.

Kirkland Lake Gold Ltd.

Kirkland Lake Gold is a Canadian gold mining and exploration company with three producing mines in Australia: the Fosterville Gold Mine and the Stawell Gold Mine in the State of Victoria and the Cosmo Gold Mine in the Northern Territory. Co. also has a portfolio of development opportunities on its significant land package, including the Big Hill Project at Stawell and various projects in the Northern Territories. In addition, Co. owns title to a mining lease located in north-central Newfoundland, Canada.

Markel Corporation

Markel is a financial holding company. The company's business operations are: Underwriting, which comprised of risk-bearing insurance and reinsurance operations; Investing, which is primarily related to underwriting operations; Markel Ventures, Inc., includes controlling interests in a portfolio of businesses that operate outside of the specialty insurance marketplace; Insurance-linked securities, which include investment fund managers that provide investment products, including insurance-linked securities, catastrophe bonds, insurance swaps and weather derivatives; and Program services, which serves as a fronting platform that provides access to property and casualty insurance market.

Mercury General Corporation

Mercury General is an insurance holding company. Through its insurance subsidiaries, the company writes personal automobile insurance. The company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The company provides the following types of automobile coverage: collision, property damage, bodily injury, comprehensive, personal injury protection, underinsured and uninsured motorist, and other hazards. The company provides the following types of homeowners coverage: dwelling, liability, personal property, fire, and other hazards. The company sells its policies through a network of independent agents, its insurance agencies, and directly through internet sales portals.

Newmont Corporation

Newmont is primarily a gold producer with operations and/or assets in the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia and Ghana. The company is also engaged in the production of copper, silver, lead and zinc. The company's operations are organized in five geographic regions; North America, South America, Australia, Africa and Nevada.

NovaGold Resources Inc.

NovaGold Resources is a mineral exploration company engaged in the exploration and development of gold and copper mineral properties. Co.'s primary focus is on the Donlin Gold project in Alaska. The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly owned subsidiaries of Co. and Barrick Gold Corporation. Co. also has an interest in the Galore Creek copper-gold-silver project in British Columbia, Canada. The Galore Creek project is held by a partnership owned equally by NOVAGOLD Canada Inc., a wholly-owned subsidiary of Co., and by Teck Resources Limited.

Progressive Corporation

Progressive is an insurance holding company. The company's insurance subsidiaries and affiliates provide personal and commercial auto insurance, personal residential property insurance, and other insurance and related services. The company's Personal Lines segment writes insurance for personal autos and recreational and other vehicles. The Commercial Lines segment writes auto-related primary liability and physical damage insurance, and business-related general liability and property insurance, each predominately for small businesses. The company focuses on property insurance for homes, condos, manufactured homes, and renters, as well as personal umbrella insurance and primary and excess flood insurance.

RLI Corp.

RLI is an insurance holding company. Through its subsidiaries collectively known as RLI Insurance Group, the company is engaged in underwriting selected property and casualty insurance. The company has three segments: casualty, which includes commercial excess and personal umbrella, general liability, commercial transportation, professional services, small commercial, executive products, and other casualty; property, which includes commercial property, specialty personal and other property coverages; and surety, which includes miscellaneous surety coverage, commercial surety bonds, and bonds for small to medium-sized contractors.

ROYAL GOLD INC

Royal Gold acquires and manages precious metal streams, royalties and similar interests. The company acquires existing stream and royalty interests or finances projects that are in production or in the development stage in exchange for stream or royalty interests. A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Royalties are non-operating interests in mining projects that provide the right to a portion of revenue or metals produced from the project after deducting specified costs, if any.

Selective Insurance Group Inc.

Selective Insurance Group has four segments: Standard Commercial Lines, which is comprised of property and casualty insurance products and services provided in the standard marketplace to commercial enterprises; Standard Personal Lines, which is comprised of property and casualty insurance products and services provided to individuals acquiring coverage in the standard marketplace; Excess and Surplus Lines, which is comprised of insurance products and services provided to customers who are unable to obtain coverage in the standard marketplace; and Investments, which invests the premiums collected by the company's insurance operations and amounts generated through its capital management strategies.

Travelers Companies Inc.

Travelers Companies is a holding company. Through its subsidiaries, the company is engaged in providing commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. The company's segments include: Business Insurance, which provides property and casualty insurance and insurance-related services; Bond and Specialty Insurance, which provides surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services, and certain specialty insurance products; and Personal Insurance, which writes property and casualty insurance covering individuals' personal risks.

W. R. Berkley Corporation

W. R. Berkley is an insurance holding company. The company operates in two segments of the property casualty insurance business: Insurance, which includes commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia; and Reinsurance, which provides reinsurance business on a facultative and treaty basis, primarily in the United States, the United Kingdom, Continental Europe, Australia, the Asia-Pacific region and South Africa.

White Mountains Insurance Group Ltd

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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