Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.92 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Dow Testing 1-Year Resistance at 34,280

The S&P 500 has marginally surpassed the 4300-4325 area which we have anticipated would cap upside for 2023. As we noted in our 6/6/23 Compass, we are vigilant at these levels given our expectation for inflation to remain elevated, but we simply cannot be bearish if the S&P 500 is above 4165-4200. 4300 is now another short-term support level to watch. Breadth has continued to improve within the small-cap Russell 2000 (IWM), and the IWM is approaching our first target of $190 following the breakout above $180. Additionally, we are starting to see breadth improve within the S&P 500 (% of stocks above their 50-day MAs and improvement in advance/decline line). These are all healthy signs.

Dow, Equal-Weighted S&P 500 (RSP). The Dow has rallied to test 1-year resistance at 34,280, while the equal-weighted S&P 500 (RSP) remains below $153; these continue to be important levels moving forward... see chart below.
Banks (KRE, KBE), Retail (XRT), Renaissance IPO (IPO). Banks (KRE, KBE) and retail (XRT) have been problematic areas of the market, but they have started to turn into tailwinds with the KRE reclaiming $41.50, the KBE holding above $35, and the XRT holding above $56. Another previously problematic area was high growth IPOs (ETF: IPO); this appears to be turning into yet another tailwind with the IPO ETF breaking above an important pivot point at $31... see page 4.
Big Picture Trends. Defensive Sectors including Utilities (XLU), Staples (XLP), and Health Care (XLV) are hitting 1+ year RS lows. Industrials (XLI) and Materials (XLB) display bullish price and RS inflections. Equal-weighted Technology is breaking above $285 (1-year resistance). The gold vs. S&P 500 ratio displays a 10-month uptrend violation. The 10-year Treasury yield remains below 4.0% resistance. The U.S. dollar (DXY) remains below $105.50 resistance. These are all risk-on signals. Until these big picture trends start to reverse, it is difficult to make a bearish case for equities... see pages 4-8.
Underlyings
Applied Industrial Technologies Inc.

Applied Industrial Technologies is a distributor of bearings, power transmission products, fluid power components and systems, specialty flow control solutions, and other industrial supplies, operating in North America, Australia, New Zealand, and Singapore. In addition, the company provides engineering, design, and systems integration for industrial, fluid power, and flow control applications, as well as customized mechanical, fabricated rubber, fluid power, and flow control shop services. The company has two reportable segments: service center based distribution; and fluid power and flow control.

Atkore Inc

Atkore International Group is a holding company. Through its subsidiaries, the company is engaged as a manufacturer of Electrical Raceway products primarily for the non-residential construction and renovation markets and Mechanical Products and Solutions (MP&S) for the construction and industrial markets. The company's segments are: Electrical Raceway, which ufactures products that deploy, isolate and protect a structure's electrical circuitry from the original power source to the final outlet; and MP&S, which provides products and services that frame, support and secure component parts in a range of structures, equipment and systems in electrical, industrial and construction applications.

Belden Inc.

Belden is a global supplier of networking solutions built around two global business platforms: Enterprise Solutions and Industrial Solutions. The company's portfolio of solutions enables customers to transmit and secure data, sound, and video for mission critical applications across complex enterprise and industrial environments. The company's Enterprise Solutions segment provides network infrastructure solutions, as well as cabling and connectivity solutions for commercial audio/video and security applications. The company's Industrial Solutions segment provides networking components and machine connectivity products.

Carnival Corporation

Encore Wire Corporation

Encore Wire is a manufacturer of electrical building wire and cable. The company is a supplier of building wire for interior electrical wiring in commercial and industrial buildings, homes, apartments, and manufactured housing. The principal customers for the company's wire are wholesale electrical distributors, who sell building wire and other products to electrical contractors. The company provides an electrical building wire product line that consists primarily of NM-B cable, UF-B cable, THHN/THWN-2, XHHW-2, RHH/RHW-2 and other types of wire products, including tray cable, metal-clad and armored cable. These products are manufactured with copper or aluminum as the current-carrying component of the conductor.

Flowserve Corporation

Flowserve is a manufacturer and aftermarket service provider of flow control systems. The company develops and manufactures flow control equipment integral to the movement, control and protection of the flow of materials in its customers' processes. The company's segments are: Flowserve Pump Division, which are for custom, pumps, pre-configured industrial pumps, pump systems, mechanical seals, auxiliary systems and replacement parts and related services; and Flow Control Division, which are for engineered and industrial valves, control valves, actuators and controls and related services.

Franklin Electric Co. Inc.

Franklin Electric Company designs, manufactures and distributes water and fuel pumping systems, composed primarily of submersible motors, pumps, electronic controls and related parts and equipment. The company's business consists of three segments: Water Systems, which designs, manufactures and sells motors, pumps, drives, electronic controls, monitoring devices, and related parts and equipment; Fueling Systems, which designs, manufactures and sells pumps, pipe, sumps, fittings, vapor recovery components, electronic controls, monitoring devices and related parts and equipment; and Distribution, which operates as a collection of wholly owned groundwater distributors known as the Headwater Companies.

Gorman-Rupp Co.

Gorman-Rupp designs, manufactures and sells pumps and pump systems for use in water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning, military and other liquid-handling applications. The company's product line consists of pump models ranging in size from 1/4 inches to nearly 15 feet and ranging in several rated capacity. The types of pumps which the company produces include self-priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed-flow, vertical turbine line shaft, submersible, high-pressure booster, rotary gear, diaphragm, bellows and oscillating.

Graco Inc.

Graco is a manufacturing company. The company designs, manufactures and markets systems and equipment used to move, measure, control, dispense and spray fluid and powder materials. The company classifies its business into three segments: Industrial, which includes its Industrial Products and Applied Fluid Technologies divisions and markets equipment and solutions for moving and applying paints, coatings, sealants, adhesives and other fluids; Process, which includes its Process, Oil and Natural Gas, and Lubrication divisions and markets pumps, valves, meters and accessories; and Contractor, which markets sprayers for architectural coatings for painting, corrosion control, texture and line striping.

Hubbell Incorporated Class B

Hubbell is primarily engaged in the design, manufacture and sale of electrical and electronic products for a range of non-residential and residential construction, industrial and utility applications. The company has two segments: Electrical, which comprised of businesses that sell stock and custom products including application wiring device products, electrical products, connector and grounding products, lighting fixtures and controls, components and assemblies, as well as other electrical equipment; and Power, which consists of operations for the design, manufacture and sale of transmission and distribution components primarily for the electrical utilities industry.

ITT Inc.

ITT is a manufacturer of engineered components and customized technology solutions for the transportation, industrial, and oil and gas markets. The company's segments are: Motion Technologies, which manufactures brake pads, shims, shock absorbers, energy absorption components, and sealing technologies; Industrial Process, which provides a portfolio of industrial pumps, valves, and plant optimization systems and services; and Connect and Control Technologies, which designs and manufactures a range of connectors and products for applications supporting various markets including aerospace and defense, industrial, transportation, medical, and oil and gas.

Mueller Water Products Inc. Class A

Mueller Water Products is a manufacturer and marketer of products and services used in the transmission, distribution and measurement of water in North America. The company's products and services are used by municipalities and the residential and non-residential construction industries. The company's segments include: Infrastructure, which manufactures valves for water and gas systems, including iron gate, butterfly, tapping, automatic control and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a line of pipe repair products; and Technologies, which provides residential and commercial water metering, water leak detection and pipe condition assessment products, systems and services.

Norwegian Cruise Line Holdings Ltd.

Powell Industries Inc.

Powell Industries develops, designs, manufactures and services custom-engineered products and systems which distribute, control and monitor the flow of electrical energy and provide protection to motors, transformers and other electrically powered equipment. The company's principal products include integrated power control room substations, custom-engineered modules, electrical houses, distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers and bus duct systems. The company assists customers by providing services including spare parts, field service inspection, installation, commissioning, and modification and repair.

Preformed Line Products Co.

Preformed Line Products is a designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, and information industries. The company's products include: energy products, which support, protect, terminate and secure power conductor and communication cables and control cable dynamics; communications products, which protect fixed line communication networks from moisture, environmental hazards and other potential contaminants; and special industries products, which are used by energy, renewable energy, communications, cable and special industries for various applications.

Regal Beloit Corp

Regal Beloit is a manufacturer of electric motors, electrical motion controls, power generation and power transmission products. The company is comprised of four operating segments: Commercial Systems, which produces AC and DC motors, electronic variable speed controls, fans, and blowers for commercial applications; Industrial Systems, which produces motors, generators, alternators and switchgear for industrial applications, along with aftermarket parts and kits to support such products; Climate Solutions, which produces small motors, electronic variable speed controls and air moving solutions; and Power Transmission Solutions, which produces, sells and services belt and chain drives.

ROYAL CARIBBEAN GROUP

Watts Water Technologies Inc. Class A

Watts Water Technologies is a supplier of products, solutions and systems that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets. The company's product lines are: residential and commercial flow control products, which includes backflow preventers, water pressure regulators, and temperature; heating, ventilation, and air conditioning and gas products, which includes boilers, water heaters and heating solutions; drainage and water re-use products, which includes drainage products and rain water harvesting solutions; and water quality products, which includes water filtration, conditioning and scale prevention systems.

ZURN WATER SOLUTIONS CORP

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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