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

Vermilion Compass: Weekly Equity Strategy

Upgrading Materials to Market Weight

We have discussed for weeks that we will need to see the S&P 500 and Nasdaq 100 (QQQ) close below their 20-day MAs for 2-3 consecutive days in order to get more cautious. This still has not happened, meaning the short-term trend remains bullish. Closes below their 20-day MAs have been extremely rare since the October 2023 bottom, with buyers stepping-in immediately. Still, we need to be prepared. If we do get 2-3 closes below the 20-day MAs on the S&P 500 and QQQ, next support would be 4983-5050 on the S&P 500, and $425-$433 on QQQ (gap supports from 2/22/24); if some or all of these gaps remain unfilled, it is a sign that bulls remain in control. However, a break below 4983 on the S&P 500 would significantly increase the odds of a pullback to 4800 on the S&P 500; as long as 4800 support holds and market dynamics remain healthy, such a pullback would likely be a buying opportunity (7-8% pullback from the current highs)... see chart below.

Upgrading Materials to Market Weight; Rotations Into Commodity Sectors. One thing that is clear is we are seeing a short-term rotation into commodity Sectors -- Energy (RSPG, XLE) and Materials (XLB). These two Sectors would likely benefit once a pullback in the S&P 500 finally begins. Materials (XLB) displays a bullish 10-month RS downtrend reversal, and we are upgrading the Sector to market weight. Rising commodity prices are helping move these Sectors higher; gold and WTI crude oil remain bullish, while the Bloomberg Commodity index (DJP) and copper are bullishly inflecting... see page 3.
Small-Caps, Treasury Yields. Small-caps have not been nearly as fortunate as large-caps, likely due to 10- and 30-year Treasury yields testing their YTD highs and major resistances at 4.35% and 4.50%, respectively. Still, small-caps are just consolidating... see pages 4-5.
Risk-On Signals. High yield spreads are at fresh 2+ year narrows. Defensive Sectors including Staples (XLP) and Utilities (XLU) are near 20+ year RS lows. The U.S. dollar (DXY) is below $106 and could not even break above $104.70. The 10-year Treasury yield is below 4.35% (though testing now) and bond market volatility remains low. These are all risk-on signals that lead us to believe any pullback in the S&P 500 is likely to present a buying opportunity.
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

APA Corporation

Cementos Pacasmayo SAA ADR

Cemex SAB de CV (ADR)

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.

CONOCOPHILLIPS

ConocoPhillips is an exploration and production company engaged in exploring for, producing, transporting and marketing crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids. The company's segments include: Alaska, which operates in Alaska; Lower 48, which operates in the United States and the Gulf of Mexico; Canada, which operates in Alberta and British Columbia; Europe and North Africa, which consists of operations and exploration activities in Norway, the United Kingdom and Libya; Asia Pacific and Middle East, which operates in China, Indonesia, Malaysia, Australia, Qatar, and Timor-Leste; and Other International, which operates in Colombia, Chile and Argentina.

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.

Devon Energy Corporation

Devon Energy is an independent energy company engaged primarily in the exploration, development and production of oil, natural gas and natural gas liquids. The company's operations are concentrated in various onshore areas in United States. The company's areas of operation include Delaware Basin, Eagle Ford, Powder River Basin and the STACK development, located primarily in Oklahoma's Canadian, Kingfisher and Blaine counties.

Diamondback Energy Inc.

Diamondback Energy is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The company's activities are primarily focused on horizontal development of the Spraberry and Wolfcamp formations of the Midland Basin and the Wolfcamp and Bone Spring formations of the Delaware Basin, both of which are part of the larger Permian Basin in West Texas and New Mexico.

EOG Resources Inc.

EOG Resources, together with its subsidiaries, explores for, develops, produces and markets crude oil, natural gas liquids and natural gas primarily in main producing basins in the United States, The Republic of Trinidad and Tobago, The People's Republic of China, Canada and, from time to time, select other international areas.

Freeport-McMoRan Inc.

Freeport-McMoRan is a holding company. Through its subsidiaries, the company is a mining company. The company operates assets with proven and probable reserves of copper, gold and molybdenum, and the company is a publicly traded copper producer. The company's portfolio of assets includes the Grasberg minerals district in Indonesia, copper and gold deposits; and mining operations in North America and South America, including the Morenci minerals district in Arizona and the Cerro Verde operation in Peru. The company has organized its mining operations into four primary divisions: North America copper mines, South America mining, Indonesia mining and Molybdenum mines.

Hess Corporation

Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquid (NGL), and natural gas with production operations located primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia and Denmark. The company's Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGL; gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.

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.

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.

Marathon Oil Corporation

Marathon Oil is an independent exploration and production company focused on the United States resource plays. The company also has international operations in Equatorial Guinea (E.G.). The company's segments are: United States, which explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in the United States; and International, which explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of the United States as well as produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol, in E.G.

Martin Marietta Materials Inc.

Martin Marietta Materials is a natural resource-based building materials company. The company supplies aggregates (crushed stone, sand and gravel) through its network of quarries, mines and distribution yards. The company also provides cement and downstream products, namely, ready mixed concrete, asphalt and paving services. The company conducts its Building Materials business through three segments: Mid-America Group, Southeast Group and West Group. The Mid-America and Southeast Groups provide aggregates products only. The West Group provides aggregates, cement and downstream products. The company also has the Magnesia Specialties segment, which includes its magnesia-based chemicals and dolomitic lime businesses.

Occidental Petroleum Corporation

Occidental Petroleum has three reporting segments: oil and gas, which explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas; chemical, which mainly manufactures and markets basic chemicals (chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride) and vinyls (vinyl chloride monomer, polyvinyl chloride and ethylene); and marketing and midstream, which purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide and power.

Pioneer Natural Resources Company

Pioneer Natural Resources is a holding company. Through its subsidiaries, the company is engaged in oil and gas exploration and production. The company explores for, develops and produces oil, Natural Gas Liquids and gas within the United States, with operations in the Permian Basin in West Texas. The company's portfolio of resources are located in the Spraberry/Wolfcamp oil field.

Southern Copper Corporation

Southern Copper is a copper producer. The company's mining, smelting and refining facilities are located in Peru and Mexico and the company conducts exploration activities in those countries and in Argentina, Chile and Ecuador. The company's Peruvian copper operations involve mining, milling and flotation of copper ore to produce copper concentrates and molybdenum concentrates, the smelting of copper concentrates to produce blister and anode copper, and the refining of anode copper to produce copper cathodes. The company's Mexican operations are conducted through its subsidiary, Minera Mexico, S.A. de C.V., which engages primarily in the mining and processing of copper, molybdenum, zinc, silver, gold and lead.

Summit Materials Inc. Class A

Summit Materials is a holding company. Through its subsidiaries, the company is a construction materials company. The company produces and sells aggregates, cement, ready-mix concrete, asphalt paving mix and concrete products and owns and operates quarries, sand and gravel pits, cement plants, cement distribution terminals, ready-mix concrete plants, asphalt plants and landfill sites. The company is engaged in paving and related services. The company has operations in various states across the United States and in British Columbia, Canada. The company operates a municipal waste landfill in its East segment, and has construction and demolition debris landfills and liquid asphalt terminal operations in its West and East segments.

Taseko Mines Limited

Taseko Mines is engaged in the exploration, acquisition, development and sale of gold copper, molybdenum, niobium and other related mines within the province of British Columbia, Canada.

Teck Resources Limited Class B

Teck Resources is engaged in mining and related activities including exploration, development, processing, smelting and refining. Co.'s major products are steelmaking coal, copper and zinc. Co. also produces precious metals, lead, molybdenum, electrical power, fertilizers and other metals. Co. also owns an interest in certain oil sands leases and have partnership interests in an oil sands development project and wind power project.

U.S. Lime & Minerals

United States Lime & Minerals through its Lime and Limestone Operations, is a manufacturer of lime and limestone products, supplying primarily the construction (highway, road and building contractors), industrial (paper and glass manufacturers), environmental (municipal sanitation and water treatment facilities and flue gas treatment processes), metals (steel producers), oil and gas services, roof shingle manufacturers and agriculture (poultry and cattle feed producers) industries. The company, through its wholly owned subsidiary has royalty interests and a non-operated working interest with respect to oil and gas rights on the company's land located in Johnson County, TX, in the Barnett Shale Formation.

U.S. Silica Holdings Inc.

U.S. Silica Holdings is a holding company. Through its subsidiaries, the company is a performance materials company and a producer of commercial silica used in industrial applications and in the oil and gas industry. The company is also engaged in the production of products derived from diatomaceous earth, perlite, engineered clays, and non-activated clays. The company's segments include: Oil and Gas Proppants, which serves the oil and gas recovery market by providing and delivering fracturing sand; and Industrial and Specialty Products, which provides products and materials for building and construction products, fillers and extenders, filtration, glassmaking, absorbents, foundry, and sports and recreation.

Western Copper and Gold

Western Copper and Gold is an exploration stage company that is engaged in exploration and development of the Casino mineral property located in Yukon, Canada. The Casino property is host to one of the undeveloped porphyry deposits in Canada containing large amounts of gold, copper, and molybdenum in its one billion tonnes of reserves.

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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