Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.72 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Downgrading Manufacturing to Market Weight

Our bullish outlook (since early-November 2023) remains intact. In terms of the S&P 500 and Nasdaq 100, there are few things more bullish than indexes breaking out to all-time highs following a major correction that we had in 2022 -- but that is exactly what is happening. In last week's Compass (5/21/24) we discussed how it is a very bullish sign that there have been three upside gaps in May on the S&P 500, with all gaps left unfilled. This and the healthy market dynamics discussed since late-October 2023 continue to validate our bullish outlook.

Downgrading Manufacturing; Overweight Growth. We are downgrading Manufacturing (XLI) to market weight, and we are shifting to overweight growth... see charts below.
S&P 500, Russell 2000. In last week's Compass (5/21/24) we discussed the bullish implications of the three upside gaps that occurred in May. We also discussed to expect short-term support at these gaps from May 15th (breakout to all-time highs), May 6th, and May 3rd (1-month downtrend reversal) at 5250-5263, 5127-5142, and 5073-5101, respectively. The first gap support at 5250-5263 held strong last week, with the S&P 500 bottoming-out at 5257 on Thursday. Once again, this is the market validating our bullish outlook. These remain important supports moving forward; we continue to expect new uptrends to form, resulting in significant upside ahead. The Russell 2000 (IWM) found support at the 1+ month uptrend as it continues to test major resistance at $210; as long as the IWM remains above gap support at $200-$202 we expect a breakout above $210... see page 3.
Risk-On. Bullish/risk-on signals remain the dominant theme, as discussed since November 2023 and throughout 2024. The latest new risk-on signals we are seeing are in the clean energy space (QCLN), where stocks are starting to emerge as leadership. This includes solar (TAN), wind (FAN), and hydrogen/fuel cell (HYDR) -- add exposure... see page 4.
Interest Rates. Rates have been climbing the past two weeks, but as we have said repeatedly since March, as long as the 10-year is below 4.7-5.0%, what matters most is low Treasury interest rate volatility (MOVE index) and the idea that the Fed's next move is likely to be a cut (NOT a raise). As long as the MOVE index remains at 2.25-year lows, marginally higher yields are not likely to derail the SPX bull market... see page 5.
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

Aspen Aerogels

Aspen Aerogels is an aerogel technology company that designs, develops and manufactures aerogel insulation used primarily in the energy infrastructure and building materials markets. The company also conducts research and development related to aerogel technology. The company's product lines include: Pyrogel XT-E, which is designed for use in refineries and petrochemical facilities; Pyrogel XTF, which is designed to provide protection against fire; Cryogel Z, which is designed for sub-ambient and cryogenic applications in the energy infrastructure market; and Spaceloft Subsea, which is designed for use in pipe-in-pipe applications in offshore oil production.

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.

Constellium SE Class A

Constellium N.V. designs and manufactures a range of innovative specialty rolled and extruded aluminum products, serving primarily the aerospace, packaging and automotive end-markets. Co. has a strategic footprint of manufacturing facilities located in the United States, Europe and China. Co.'s product portfolio commands higher margins as compared to less differentiated, more commoditized fabricated aluminum products, such as common alloy coils, paintstock, foilstock and soft alloys for construction and distribution. Co. organizes its business around three operating segments: Aerospace & Transportation, Packaging & Automotive Rolled Products, and Automotive Structures & Industry.

Generac Holdings Inc.

Generac Holdings is a designer and manufacturer of a range of power generation equipment and other power products serving the residential, light commercial and industrial markets. The company's products include residential, commercial and industrial standby generators, as well as portable and mobile generators used in a range of applications. Other engine powered products that the company designs and manufactures include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters and pumps used in the oil and gas, construction and other industrial markets; and a product line of outdoor power equipment for residential and commercial use.

Hawkins Inc.

Hawkins distributes, blends and manufactures chemicals and ingredients for its customers. The company's segments are: Industrial, which provides industrial chemicals, products and services to industries such as agriculture, chemical processing, and plating; Water Treatment, which provides chemicals, equipment and solutions for potable water, municipal and industrial wastewater, industrial process water and non-residential swimming pool water; and Health and Nutrition, which provides ingredient distribution, processing and formulation solutions to manufacturers of nutraceutical, functional food and beverage, personal care, dietary supplement and other nutritional food, health and wellness products.

Howmet Aerospace Inc.

Howmet Aerospace is a provider of engineered solutions for the aerospace and transportation industries. The company's primary businesses focus on jet engine components, aerospace fastening systems, and titanium structural parts necessary for mission-critical performance and efficiency in aerospace and defense applications, as well as forged wheels for commercial transportation.

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.

Innospec Inc.

Innospec develops, manufactures, blends, markets and supplies chemicals for use as fuel additives, and ingredients for personal care, home care, agrochemical, mining and other applications and oilfield chemicals. The company has four segments: Fuel Specialties, which develops, manufactures, blends, markets and supplies a range of chemical products; Performance Chemicals, which provides products focused on the personal care, home care, agrochemical and mining markets; Oilfield Services, which develops and markets products to prevent loss of mud in drilling operations, and chemical solutions; and Octane Additives, which comprises sales of tetra ethyl lead for use in automotive gasoline.

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.

LSB Industries Inc.

LSB Industries is a holding company. Through its subsidiaries, the company manufactures and markets chemical products. Within its agricultural products, the company produces and sells urea ammonia nitrate, high density ammonium nitrate (HDAN) and ammonia, all of which are nitrogen-based fertilizers. Within its industrial acids and other chemical products, the company manufactures and sells industrial acids and other chemical products primarily to the polyurethane intermediates, paper, fibers, emission control, and electronics industries. Within its mining products, the company produces and sells low density ammonium nitrate, HDAN and ammonium nitrate (AN) solution to the mining industry.

Norsk Hydro ASA ADS

Oil-Dri Corp. Of America

Oil-Dri Corp of America develops, manufactures and/or markets sorbent products. The company's sorbent products are produced from hydrated aluminosilicate minerals, consisting of calcium bentonite, attapulgite and diatomaceous shale, which refers as its clay or its minerals. The company surfaces mine its clay on land near its manufacturing facilities in Mississippi, Georgia, Illinois and California. The company also sells some nonclay-based products, such as its Oil-Dri synthetic sorbents. The company's products include agricultural and horticultural products, animal health and nutrition products, bleaching clay and purification aid products, cat litter products, industrial and automotive products, and sports products.

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.

Power Solutions International Inc.

Power Solutions International designs, engineers, manufactures, markets and sells a range of engines and power systems that are powered by a variety of fuels, including natural gas, propane, gasoline, diesel and biofuels. The company's products are used by global original equipment manufacturers and end-user customers across a range of applications and equipment that includes standby and prime power generation, demand response, microgrid, combined heat and power, arbor equipment, material handling (including forklifts), agricultural and turf, construction, pumps and irrigation, compressors, utility vehicles, light- and medium-duty vocational trucks, and school and transit buses.

Rayonier Advanced Materials Inc

Rayonier Advanced Materials is a manufacturer of cellulose products, lumber, and pulp & paper products. The company's operating segments are: High Purity Cellulose, which manufactures and markets cellulose, which is sold as either cellulose specialties or commodity products that is primarily used in dissolving chemical applications; Forest Products, which the lumber, primarily spruce, pine, or fir, is used in the construction of residential and multi-family homes, light industrial and commercial facilities, and the home repair and remodel markets; Pulp, which manufactures and markets pulp products; and Paper, which manufactures and markets paper products consisting of paperboard and newsprint.

Rio Tinto PLC ADS (Mexico)

Tronox Holdings Plc

Valhi Inc.

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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