Vermilion Compass: Weekly Equity Strategy
Sector & Group-level trends confirm risk-on environmentOur outlook remains bullish, and this is not based solely on new highs in the S&P 500 or Russell 2000. While we like to have those boxes checked, more important to us are the trends at the Sector and Group levels. And right now what we see confirms a risk-on environment, including:
• Manufacturing is breaking out to all-time relative strength highs (see below). For individual ideas, refer to our 9/27 Insights, “Widespread base patterns through Manufacturing.†In today's report we highlight set-ups in auto parts (and transports, part of the S&P 500 Industrial sector)... pages 8-20
• Banks are recovering from failed breakdowns. The failure of a bearish pattern is bullish, and banks are a real-time example, with the KRE bullishly inflecting... page 3
• Biotechs are resuming their advance. The IBB is breaking out from a multi-week consolidation, with attractive pullbacks visible in names like AMGN and BIIB... page 3
• Semis won't quit. Breakouts in INTC and MU are propelling semis to new price and relative strength highs. Stick with this trend... page 3
• Energy stocks are bottoming. Like the XLE, most energy stocks are reversing 10-month downtrends. We view this as a buy signal, recognizing that it's premature to label energy as a leader... page 4
• Metals & miners exhibit pullback opportunities. Short-term pullbacks within the confines of base patterns are visible in ETFs like XME and stocks such as RIO... page 4
• International equities are strengthening. Foreign markets, both emerging and developed, exhibit attractive technicals, confirming the new highs in the U.S... page 4
• Defensive sectors are trading at 12+ month relative strength lows.
Highlighted charts:
• ETFs: IBB, KRE, SOXX, XLE, XME
• Stocks: ABG, ARCB, DAN, FOXF, GPI, HTLD, JBHT, KMX, KNX, LCII, LSTR, MOD, MRTN, MTOR, ODFL, SAH, SAIA, SPAR, VC, WERN
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Allegheny Technologies is a manufacturer of specialty materials and components. The company operates in two business segments: High Performance Materials and Components, which produces a range of specialty materials, parts and components for several main end markets, including aerospace and defense, medical, and energy; and Flat Rolled Products, which produces nickel-based alloys, specialty alloys, titanium and titanium-based alloys, and stainless steel in a variety of forms including plate, sheet, engineered strip, and Precision Rolled Strip? products.
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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