Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.20 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Market Too Good To Be True?

Our outlook remains bullish and we continue to recommend adding exposure on pullbacks. At the moment it is difficult to point to any problems in the market aside from increasingly bullish sentiment from market participants and the worry that things are getting overheated and over-extended. Of course, at some point this almost too good to be true scenario is likely to result in a 7-15% pullback, but for now we see no signs of this rally letting up. Additionally, this goldilocks scenario has only been in effect for a week or two, and it can continue for weeks or months; we believe there is melt-up potential in the weeks – and potentially months – ahead. As always, we will monitor market dynamics closely for any signs that the tide is turning.

· S&P 500. In last week's Compass we noted our belief that recent consolidation in the S&P 500 sets the stage for a meaningful advance once the S&P 500 is able to break above 3645 short-term resistance. Now that it has happened, 3645 is short-term support and the path of least resistance is higher... see charts below.

· Sector Relative Strength Rankings & Weighting Recommendations. Equal-weighted Energy has surged to the top of our relative strength rankings and we highlight several attractive Energy stocks in today's report... see page 2.

· Market Dynamics Nearly 100% Bullish. Cyclicals are outperforming relative to defensives. Breadth remains healthy as advance/decline (A/D) lines break to new highs -- alongside prices -- in all the broad indexes. High yield spreads remain on a narrowing path. The 10-year Treasury yield remains in a 4-month uptrend. Small-caps are outperforming relative to large-caps. Commodity prices such as copper and crude oil are hitting new highs. The US dollar (DXY) is breaking decisively below 92 support. Foreign equities are also participating. The Fed remains accommodative. In fact, one of the biggest knocks on this market is that sentiment is too bullish. While we do not recommend taking large amounts of risk, we need to see some of the aforementioned indicators deteriorate before moving to a more cautious stance...
Underlyings
Alcoa Corporation

Alcoa is a vertically integrated aluminum company comprised of bauxite mining, alumina refining, aluminum production (smelting, casting, and rolling), and energy generation. Through direct and indirect ownership, the company has 30 operating locations in nine countries around the world, situated primarily in Australia, Brazil, Canada, Iceland, Norway, Spain, and United States.

Alumina Ltd ADS

Aluminum Corp. of China Ltd.

Archrock Inc.

Archrock is an energy infrastructure company with a pure-play focus on midstream natural gas compression. The company is the provider of natural gas compression services to customers in the oil and natural gas industry and a supplier of aftermarket services to customers that own compression equipment. The company has two primary business segments: Contract Operations, which provides contract operations services, including the personnel, equipment, tools, materials and supplies to meet its customers' natural gas compression needs; and Aftermarket Services, which sells parts and components and provides operation, maintenance, overhaul and reconfiguration services to customers who own compression equipment.

Baker Hughes Company Class A

Baker Hughes is an energy technology company. The company's segments are: Oilfield Services, which provides products and services for onshore and offshore operations ranging from drilling, evaluation, completion, production, and intervention; Oilfield Equipment, which provides products and services for the subsea, offshore surface and onshore operating environments; Turbomachinery and Processing Solutions, which provides equipment and related services for mechanical-drive, compression and power-generation applications; and Digital Solutions, which includes condition monitoring, industrial controls, non-destructive technologies, measurement, sensing, and pipeline solutions.

Cactus Inc

Cactus is a holding company. Through its subsidiaries, the company is primarily engaged in the design, manufacture and sale of wellhead and pressure control equipment. In addition, the company maintains a fleet of frac valves and ancillary equipment for short-term rental. The company's products are sold and rented principally for onshore unconventional oil and gas wells and are utilized during the drilling, completion and production phases of its customers' wells. The company also provides field services for all of its products and rental items to assist with the installation, maintenance and handling of the wellhead and pressure control equipment as well as provides repair and refurbishment services.

Century Aluminum Company

Century Aluminum is a holding company. Through its subsidiaries, the company produces primary aluminum and operates aluminum reduction facilities in the U.S. and Iceland. The company's principal subsidiaries are: Century Kentucky, Inc., which operates a primary aluminum reduction facility in Hawesville, KY; Nordural ehf, which operates a primary aluminum reduction facility in Grundartangi, Iceland; Century Aluminum Sebree LLC, which operates a primary aluminum reduction facility in Robards, KY; Century Aluminum of South Carolina, which operates a primary aluminum reduction facility in Goose Creek, SC; and Nordural Helguvik ehf, which owns a greenfield primary aluminum project in Helguvik, Iceland.

ChampionX Corporation

Chart Industries Inc.

Chart Industries is a manufacturer of equipment servicing multiple market applications in energy and industrial gas. The company's product portfolio is used throughout the liquid gas supply chain in the production, storage, distribution and end-use of atmospheric, hydrocarbon, and industrial gases. The company's equipment and systems are primarily used to cool gases often to cryogenic liquid temperatures and then to transport and store them as liquids. The company's products include vacuum insulated containment vessels, heat exchangers, cold boxes, liquefaction process units, other cryogenic components, gas processing equipment, ambient temperature fans and after market services.

Core Laboratories NV

Core Laboratories is a holding company. Co. is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. Co. has three segments: reservoir description, which encompasses the characterization of petroleum reservoir rock, fluid and gas samples; production enhancement, which includes products and services relating to reservoir well completions, perforations, stimulations and production; and reservoir management, which combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from its clients' reservoirs.

Halliburton Company

Halliburton assists its customers throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion and optimizing production throughout the life of the asset. The company's segments are: Completion and Production, which delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion products and services; and Drilling and Evaluation, which provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure, drill and optimize their well construction activities.

Howmet Aerospace, Inc.

Kaiser Aluminum Corporation

Kaiser Aluminum manufactures and sells semi-fabricated specialty aluminum mill products. The company's aerospace and high strength products include heat treat plate and sheet, hard alloy extruded shapes, cold finish rod and bar, drawn tube and billet used for a variety of end uses in the aerospace and defense industries. Automotive Extrusions consist of extruded aluminum products for several North American automotive applications. The company's general engineering products consists of 6000-series alloy plate, sheet, rod, bar, tube, wire and standard extruded shapes. Other products consist of extruded, drawn and cast billet aluminum products for a range of North American industrial end uses.

Nexans SA

Nexans offers cables and cabling systems for the Infrastructure, Industry, Building and Local Area Network markets. Co.'s offering covers the research, design, manufacturing, installation, training, and network supervision and control. Co. operates under three segments: Energy (power cables for energy infrastructures, special cables for industry, and equipment cables for the building market), Telecom (cables for private telecommunications networks, junction components for telecommunications network cables, and copper and optical fiber cables for public telecommunications networks) and Electrical wires (wirerods, electrical wires and winding wires production operations).

Norsk Hydro ASA ADS

North American Construction Group

North American Construction Group is a holding company. Through its subsidiaries, Co. is organized into three business segments: the Heavy Construction and Mining segment which provides mining and site preparation services, and environmental services; the Piling segment which provides deep foundation construction and design build services, designs and manufactures screw piles and pipeline anchoring systems, provides tank maintenance services and sells pipeline anchoring systems; and the Pipeline segment which provides diameter pipeline construction and installation services as well as equipment rental.

NOV Inc.

National Oilwell Varco is an independent provider of equipment and technology to the upstream oil and gas industry. The company's segments include: Wellbore Technologies, which designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations; Completion and Production Solutions, which designs, manufactures, and sells equipment and technologies for hydraulic fracture stimulation, well intervention, onshore production, and offshore production; and Rig Technologies, which designs, manufactures and sells land rigs, offshore drilling equipment packages, and drilling rig components that mechanize and automate the drilling process and rig functionality.

Nucor Corporation

Nucor manufactures steel and steel products. The company's operations include international trading and sales companies that buy and sell steel and steel products. The company's segments are: steel mills, which produces sheet steel, plate steel, structural steel, and bar steel; steel products, which produces hollow structural section steel tubing, electrical conduit, steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems, and wire and wire mesh; and raw materials, which produces direct reduced iron (DRI), brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI, supplies ferro-alloys, and processes ferrous and nonferrous scrap metal.

Olympic Steel Inc.

Olympic Steel is a metals service center that operates in three segments; carbon flat products, specialty metals flat products, and tubular and pipe products. The company's carbon flat products segment's focus is on the direct sale and distribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. The company's specialty metals flat products segment's focus is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. The company distributes metal tubing, pipe, bar, valves and fittings and fabricate pressure parts through its tubular and pipe products segment.

ProPetro Holding Corp.

ProPetro Holding is a holding company. Through its subsidiary, the company is engaged as an oilfield services company providing hydraulic fracturing and other services to upstream oil and gas companies engaged in the exploration and production of North American unconventional oil and natural gas resources. The company's operations are primarily focused in the Permian Basin. In addition to its core hydraulic fracturing operations, the company provides complementary well completion and production services, including cementing, coiled tubing, flowback services and drilling. The company conducts its business through five segments: hydraulic fracturing (inclusive of acidizing), cementing, coil tubing, flowback and drilling.

Rare Element Resources

Rio Tinto Limited

Rio Tinto is a mining group based in the United Kingdom and Australia. Co. is engaged in the business of finding, mining and processing mineral resources. Co.'s major products are iron ore, aluminium, copper, diamonds, coal, uranium, gold and industrial minerals (borax, titanium dioxide and salt). Co.'s activities span the world but are strongly represented in Australia and North America with significant businesses in South America, Asia, Europe and Africa. Co.'s operations comprise four principal product groups - Iron Ore, Aluminium, Copper and Diamonds, and Energy & Minerals.

Ryerson Holding Corporation

Ryerson Holding is a metals service center, a processor and distributor of industrial metals. The company provides flat and long metals products. The company also provides processing and fabrication services such as bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, notching, painting, perforating, polishing, punching, rolling, sawing, scribing, shearing, slitting, stamping, tapping, threading, welding, or other techniques to process materials to a specified thickness, length, width, shape, and surface quality pursuant to specific customer orders. The company operates across North America and in China.

Schlumberger NV

Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.

Schnitzer Steel Industries Inc. Class A

Schnitzer Steel Industries is engaged as a recycler of ferrous and nonferrous scrap metal, including end-of-life vehicles, and a manufacturer of finished steel products. The company has two segments: Auto and Metals Recycling, which acquires and recycles ferrous and nonferrous scrap metal for sale to foreign and domestic metal producers, processors and brokers, and procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores; and Cascade Steel and Scrap, which produces a range of finished steel long products using ferrous recycled scrap metal and other raw materials.

Sims Metal Management Ltd. ADS

Steel Dynamics Inc.

Steel Dynamics is a steel producer and metal recycler. The company manufactures and sells steel products, processes and sells recycled ferrous and nonferrous metals, and fabricates and sells steel joists and deck products. The company's segments are: Steel, which produces steel from ferrous scrap and scrap substitutes, utilizing casting, automated rolling mills and several downstream steel coating and bar processing lines, and Iron Dynamics; metals recycling, which involves the purchase, processing, and resale of ferrous and nonferrous scrap metals into reusable forms and grades; and steel fabrication, which produces steel building components, including steel joists, girders, trusses, and steel deck.

TimkenSteel Corp

TimkenSteel manufactures alloy steel, carbon and micro-alloy steel. The company's portfolio includes special bar quality (SBQ) bars, seamless mechanical tubing, solutions such as precision steel components, and billets. In addition, the company supplies machining and thermal treatment services, and the company manages raw material recycling programs. The company's products and services are used in the following market sectors: oil and gas; oil country tubular goods; automotive; industrial equipment; mining; construction; rail; aerospace and defense; heavy truck; agriculture; and power generation. The company's products include: SBQ Steel Bar, Seamless Mechanical Steel Tubes, and Billets; and Precision Products and Services.

United States Steel Corporation

United States Steel is a steel producer of flat-rolled and tubular products with production operations in the United States and Europe. The company is also engaged in railroad services and real estate operations. The company's segments are: North American Flat-Rolled, which produces slabs, strip mill plates, sheets and tin mill products; U. S. Steel Europe, which produces and sells slabs, strip mill plate, sheet, tin mill products and spiral welded pipe, as well as heating radiators and refractory ceramic materials; and Tubular Products, which produces and sells electric resistance welded steel casing and tubing (known as oil country tubular goods), and standard and line pipe and mechanical tubing.

Worthington Industries Inc.

Worthington Industries is a metals manufacturing company, focused on steel processing and manufactured metal products. The company operates three segments: Steel Processing, which buys coils of steel from integrated steel mills and mini-mills and processes them to customer specifications; Pressure Cylinders, which manufactures and sells filled and unfilled pressure cylinders, tanks, hand torches, well water and expansion tanks, and oil and gas equipment with accessories and related products for end-use market applications; and Engineered Cabs, which designs and manufactures custom-engineered open and enclosed cabs and operator stations and custom fabrications and packaging for mobile equipment.

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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