Vermilion Compass: Weekly Equity Strategy
S&P 500, Nasdaq 100, DJIA Testing SupportLarge-cap indexes are approaching critical support levels, including 4257 on the S&P 500, $334 on the Nasdaq 100 (QQQ), and 33,250 on the Dow Jones Industrial Average. These are our "lines in the sand" moving forward. Our baseline expectation is for supports to hold, but breakdowns below these levels would not be surprising and would likely mean an additional 8-15% downside based on measured moves of their respective chart patterns... see chart below and page 3.
Sector Relative Strength Rankings. Energy and Financials remain leadership and are our top two overweights -- buy on pullbacks. Elsewhere, we see pockets of strength, including metals/mining stocks within Materials, shipping and select airline stocks within Transportation, hotels/resorts/restaurants/casinos within Consumer Discretionary, and last but not least, defensives (Staples and Utilities)... see page 2.
S&P 500. The S&P 500 continues to hold above 4257 support which represents the neckline of a seemingly ominous head and shoulders topping pattern -- but as long as it remains above 4257 there is nothing ominous about it. We continue to see resistance at 4590-4595 and we expect more consolidation between 4257 and 4595 moving forward. With that said, a break below 4257 would be bearish and the measured move from the head and shoulders pattern provides a price target of 3695... see chart below.
Concerns. High yield spreads display a concerning trend, recently hitting 1+ year wides. Bitcoin is back below 39,500, a risk-off signal -- avoid. The Consumer Discretionary vs. Staples ratio (XLY vs. XLP) is back at key support and is on the cusp of a breakdown. RS for Staples (XLP) and Utilities (XLU) is back near YTD highs. Small-caps (Russell 2000, S&P 600) display short-term bearish wedge continuation patterns... see pages 4-6.
Russia, Fed Tightening. A Russian invasion remains on our list of concerns, but history suggests an invasion is often a time to be buying (Gulf of Tonkin incident, US intervention in the Gulf War, Iraq War initial air strike, and the Crimea invasion). The bigger concern is likely to be the pace of Fed tightening.
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).
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.
Booking Holdings provides travel and restaurant online reservation and related services. The company's brands include: Booking.com and Rentalcars.com, in which Booking.com provides booking online accommodation reservations, based on room nights booked, and Rentalcars.com provides online rental car reservation services; KAYAK, which provides an online price comparison service; Priceline, which provides consumers hotel, rental car and airline ticket reservation services, and vacation packages and cruises; Agoda, which is an online accommodation reservation service; and OpenTable, which provides online restaurant reservation services to consumers and reservation management services to restaurants.
Expedia Group is an online travel company. The company's portfolio of brands includes: Expedia.com?, an online travel brand; Hotels.com?, a global lodging company operating websites with its Hotels.com? Rewards loyalty program; Vrbo?, a global online marketplace with a focus on providing lodging options for families; Egencia?, a corporate travel management company; Hotwire?, an online travel website providing spontaneous travel through its Hot Rate? deals; trivago?, an online hotel metasearch platform; and SilverRail Technologies, Inc., provider of a global rail retail and distribution platform connecting rail carriers and suppliers to both online and offline travel distributors.
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.
Sabre is a technology solutions provider to the travel and tourism industry. The company operates through three business segments: Travel Network, which consists primarily of its global distribution system (GDS) and a range of solutions that integrate with its GDS; Airline Solutions, which provides a portfolio of software technology products and solutions, through software-as-a-service (SaaS) and hosted delivery model, to airlines and other travel suppliers and provides software solutions; and Hospitality Solutions, which provides software and solutions, through SaaS and hosted delivery model, to hoteliers around the world.
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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