Report
Dave Nicoski ...
  • Ross LaDuke
EUR 224.83 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Here we go again

In last week's Compass we laid the case that markets were at a key inflection point heading into the first Fed rate cut in over a decade. Despite hawkish Fed takeaways, it was the escalation in the U.S.-China trade war that was the bigger story, however both weighed on global equities. Needless to say, everything we highlighted last week as being at a key inflection point failed to resolve in a manner that was bullish for equities. Below we highlight several developments we are watching which will help determine if the current pullback will be similar to what happened in May, or if we should expect a deeper correction.

• RS for defensives. Horizontal RS support held strong for Utilities (XLU) and Real Estate (VNQ), a sign of risk aversion as investors ran for the hills. RS has quickly spiked and is already approaching YTD highs for Utilities, Real Estate, and Staples (XLP). If RS breaks out to new highs, we may be in for a deeper correction... see pages 2-3.

• Risk-on areas testing support. Several important areas of the market are either at or near support. Many of these areas helped us sniff out potential support at the June lows, and they may help us out this time around as well. Of course, if current support levels fail to hold - similar to what happened in October 2018 - the market may be in for a deeper correction... see pages 4-5.

• US dollar (DXY), euro (EURUSD), foreign equities. As expected, the breakout to new highs in the DXY and new lows in the euro created problems for foreign equities (EM and EAFE). We assess the damage... see page 6.

• Additional big picture trends. We take a look at spiking high yield spreads along with current oversold conditions for the S&P 500... see chart below and page 7.
In today's report we highlight attractive Groups and stocks within Materials: MA-26 Gold, Western Hemisphere, Large-Cap, MA-27 Gold, Western Hemisphere, Small-Cap, MA-29 Gold, South Africa, and MA-30 Silver, Platinum... see pages 14-28.
Underlyings
Agnico Eagle Mines

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.

Americas Silver Corp

Americas Silver is engaged in the acquisition, exploration, development and exploitation of mineral resource properties in Mexico and the United States. Co. explores for gold, silver, zinc, copper, and lead deposits. The 100% owned Nuestra Senora Mine in the Cosala District of Sinaloa State, Mexico, has flexible mining methods and diversified metal production. It has a mechanized underground operation and a processing facility permitted for expansion to 4,000 tonnes per day. In Idaho, Co. operates the 100%-owned producing Galena Complex which was added following the business combination with U.S. Silver. The Galena Complex has recorded production of over 220 million ounces of silver.

AngloGold Ashanti Ltd. ADS

B2Gold

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 Corp.

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.

DRDGOLD Ltd. ADS

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.

First Majestic Silver

First Majestic Silver is engaged in the business of silver production, development, exploration, and acquisition of mineral properties with a focus on silver production in Mexico.

Franco-Nevada

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.

Gold Fields Ltd. ADS

Harmony Gold Mining Co Ltd (ADR)

iShares MSCI ACWI ETF

iShares MSCI Emerging Markets ETF

iShares Russell 2000 Index Fund

iShares Trust MSCI EAFE Index Fund

Kinross Gold Corp.

Kinross Gold is engaged in the mining and processing of gold and, as a by-product, silver ore and the exploration for, and the acquisition of, gold bearing properties in the Americas, the Russian Federation, West Africa and worldwide. As of Dec 31 2013, Co.'s proven mineral reserves for gold and silver were 1,122 ounces and 1,179 ounces respectively.7,883 7,883 7,883

Kirkland Lake Gold

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.

Newmont Goldcorp

Newmont Goldcorp is a gold producer with operations and/or assets in the U.S., Australia, Peru, Ghana and Suriname. The company also produces copper, principally through operations in Boddington in Australia and Phoenix in the U.S. The company's regions include North America, South America, Australia, and Africa. The company's North America segment consists primarily of Carlin, Phoenix, Twin Creeks, Long Canyon and Cripple Creek &Victor in the U.S. The company's South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. The company's Australia segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. The company's Africa segment consists primarily of Ahafo and Akyem in Ghana.

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.

Pan American Silver Corp.

Pan American Silver is engaged in the production and sale of silver, gold and other base metals including copper, lead and zinc as well as other related activities, including exploration, extraction, processing, refining and reclamation. Co.'s primary product (silver) is produced in Peru, Mexico, Argentina and Bolivia. Additionally, Co. has project development activities in Peru, Mexico and Argentina, and exploration activities throughout South America and Mexico.

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.

Seabridge Gold

Seabridge Gold is a development stage company engaged in the acquisition and exploration of gold properties located in North America.

Select Sector SPDR-Consumer Staples

Select Sector SPDR-Industrial

Select Sector SPDR-Utilities

Sibanye Gold Ltd

Silvercorp Metals

Silvercorp Metals is engaged in the operation and development of and in the acquisition and exploration for high-grade silver-related mineral properties in the People's Republic of China. The Ying Mining District consists of four mines (SGX, HPG, TLP, and LM) and is Co.'s primary source of production.

SPDR Barclays High Yield Bond ETF

SPDR KBW Bank ETF

SSR Mining

SSR Mining is engaged in the acquisition, exploration, development and operation of silver-dominant resource properties located in the Americas. Co.'s strategic focus is to optimize the production of silver from its Pirquitas mine in Argentina, and to advance other principal development and exploration projects including San Luis in Peru, Diablillos in Argentina, and Pitarrilla and San Agustin in Mexico. In addition to its principal projects, Co. holds a geologically-diverse portfolio of other predominantly silver projects in various stages of exploration.

Vanguard REIT ETF

Wheaton Precious Metals

Wheaton Precious Metals is engaged in the silver mining business.

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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