Report
Dave Nicoski ...
  • Ross LaDuke
EUR 45.90 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

S&P 500 Testing 3870 Support; 10-Year Yield In Focus

As the S&P 500 pulls back to logical support at 3870, our weight-of-the-evidence approach continues to support our overall bullish outlook. While the positives heavily outweigh the negatives, the rising 10-year Treasury yield is threatening to become a headwind. The irony here is that we have outlined rising yields as a longstanding tailwind that has helped support our bullish outlook since early November 2020. We discuss this risk below, in addition to the many positives which lead us to remain bullish.

· 10-Year Treasury Yield, Value vs. Growth Ratios. For months we have pointed to the rising 10-year yield as a risk-on signal which supports our overall bullish outlook for equities. This is because a rising 10-year typically signals a strengthening economy and better earnings expectations, not to mention improving investor sentiment. Now, the recent steep ascent in yields has caused a shift in thinking, and rising yields are disproportionately hitting growth stocks (e.g., FAANG stocks) where valuations have more room to fall. Both the 10-year Treasury yield and value vs. growth ratios are testing logical resistance; if yields and the relative outperformance from value was going to take a breather, now would be a logical time for it to happen... see chart below and page 3.

· Positives Outweigh Negatives. While rising yields has led to deterioration for growth stocks, there has yet to be any Sector or broad index breakdowns. Additionally, many cyclical value areas are breaking out to new highs, including Financials (XLF), Industrials (XLI), Dow Transports (IYT), airliners (JETS), cruise ships, and Energy (RYE). This is hardly a bearish signal... see page 4.

· S&P 500. The S&P 500 remains bullish, however it is approaching key support at 3870. A break below the 3870 level would signal a loss of short-term upside momentum as it would indicate a false breakout. If this were to happen, we would expect further downside and would use the following support levels as our guide for potential turnaround spots: 3840, 3750, 3694, 3635, 3588, and 3550.
Underlyings
ALLEGIANT TRAVEL CO

Allegiant Travel is a travel company. The company's travel services and products are: scheduled service air transportation, which provides scheduled air transportation on flights mainly between cities and other destinations; ancillary air-related products and services, which provides unbundled air-related services and products in conjunction with air transportation; third party products and services, which provides third party travel products such as hotel rooms and ground transportation for sale to its passengers; and fixed fee contract air transportation, which provides air transportation through fixed fee agreements and charter service on a year-round and ad-hoc basis.

American Vanguard

American Vanguard is a holding company. Through its subsidiary, AMVAC Chemical Corporation (AMVAC), the company is primarily a specialty chemical manufacturer that develops and markets products for agricultural, commercial and consumer uses. The company manufactures and formulates chemicals for crops, turf and ornamental plants, and human and animal health protection. These chemicals, which include insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants, are marketed in liquid, powder, and granular forms. AMVAC primarily synthesizes, formulates, and distributes its own proprietary products or custom manufactures or formulates for others.

Cameco Corporation

Cameco and its subsidiaries are engaged in the exploration for and the development, mining, refining, conversion and fabrication of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries. Co. has three reportable segments: uranium, which explores for, mines, mills, purchases, and sells uranium concentrate; fuel services, which refines, converts and fabricates uranium concentrate, and purchases and sells conversion services; and electricity, which generates and sells electricity through its 31.6% interest in the Bruce Power Limited Partnership, which operates four nuclear reactors and manages the overall site in southern Ontario.

Canaccord Genuity Group

Canaccord Genuity Group, through its principal subsidiaries, is an independent, full-service investment dealer in Canada with capital markets operations in Canada, the U.K. and Europe, the U.S., Australia, China, Singapore and Barbados. Co. also has wealth management operations in Canada, the U.K. and Europe, and Australia. Co. has operations in each of the two principal segments of the securities industry: capital markets and wealth management. Together, these operations provide a range of complementary investment products, brokerage services and investment banking services to Co.'s private, institutional and corporate clients.

Centrus Energy Corporation

Centrus Energy is a supplier of nuclear fuel and services for the nuclear power industry. The company operates two business segments: low-enriched uranium (LEU), which supplies various components of nuclear fuel to utilities; and contract services, which provides engineering, design, and manufacturing services to government and private sector customers. The company's LEU business involves the sale of low-enriched uranium, its components, and natural uranium to utilities operating commercial nuclear power plants. LEU is a component in the production of nuclear fuel for reactors that produce electricity. The company supplies LEU to both domestic and international utilities for use in nuclear reactors.

CVR Partners LP

Da Nang Water Supply JSC

Energy Fuels

Energy Fuels is engaged in uranium mining, milling, development, and exploration with operating uranium mines, mines on standby, development projects and exploration properties located in the United States. Co.'s assets include its 100% ownership of the White Mesa Mill in Utah. Co. also produces vanadium as a co-product from some of its mines in Colorado and Utah. In addition, Co. recycles uranium-bearing waste materials, referred to as "alternate feed materials", for the recovery of uranium, alone or in combination with other metals, at its White Mesa Mill.

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.

Hawaiian Holdings Inc.

Hawaiian Holdings is a holding company. Through its wholly-owned subsidiary, Hawaiian Airlines, Inc., the company is engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands, between the Hawaiian Islands and certain cities in the United States, and between the Hawaiian Islands and the South Pacific, Australia, New Zealand and Asia. The company provides non-stop service to Hawai'i from various United States gateway cities and also provides daily flights between the Hawaiian Islands. In addition, the company operates various charter flights. The company's flight operations are based in Honolulu, HI. The company operates scheduled flights with various ad hoc charters.

Hudbay Minerals Inc

HudBay Minerals is engaged in the discovery, production and marketing of copper, gold, silver, zinc and other base and precious metals in North, Central and South America. Through its subsidiaries, Co. owns copper, zinc and gold mines, ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan, and a copper project in Peru.

ICL Group Ltd.

Israel Chemicals, through its subsidiaries, extracts raw materials and utilizes processing and product formulation technologies to add value to customers in the areas of agriculture, electronics, food, fuel and gas exploration, water purification and desalination, detergents, cosmetics, medicines and vehicles. Co. operates two segments: Essential Minerals and Specialty Solutions. The Essential Minerals segment includes the ICL Potash & Magnesium, ICL Phosphate and ICL Specialty Fertilizers business lines. The Specialty Solutions segment includes four business lines: ICL Industrial Products; ICL Specialty Fertilizers; ICL Advanced Additives and ICL Food Specialties.

Intrepid Potash

JetBlue Airways Corporation

JetBlue Airways provides air transportation services. The company also provides Fare Options pricing model, at one of three branded fares: Blue, Blue Plus, and Blue Flex. Each fare includes different offerings such as checked bags, reduced change fees, and additional TrueBlue? points, with all fares including the company's primary offering of in-flight entertainment, snacks and non-alcoholic beverages. TrueBlue? is the company's customer loyalty program designed to reward and recognize loyal customers. The company operates Airbus A321, Airbus A320 and Embraer E190 aircraft types. The company also sells vacation packages through JetBlue Vacations?, a vacation service for self-directed packaged travel planning.

Livent

Livent manufactures lithium. The company's primary products, namely battery-grade lithium hydroxide, butyllithium and high purity lithium metal are inputs used in various applications. The company produces lithium compounds for use in applications that have specific performance requirements, including battery-grade lithium hydroxide for use in lithium-ion batteries. The company also supplies butyllithium, which is used as a synthesizer in the production of polymers and pharmaceutical products, as well as a range of specialty lithium compounds including high purity lithium metal, which is used in the production of lightweight materials for aerospace applications and non-rechargeable batteries.

Mosaic Company

Mosaic is a producer and marketer of concentrated phosphate and potash crop nutrients. The company is organized into three reportable business segments: Phosphates, which owns and operates mines and production facilities in Florida that produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana that produce concentrated phosphate crop nutrients; Potash, which mines and processes potash in Canada and the United States and sells potash in North America and internationally; and Mosaic Fertilizantes, which produces and sells concentrated phosphates crop nutrients, phosphate-based animal feed ingredients and potash fertilizer.

Scotts Miracle-Gro Company Class A

Scotts Miracle-Gro is a manufacturer and marketer of consumer lawn and garden products in North America. The company's segments are: United States Consumer, which consists of the company's consumer lawn and garden business located in United States; Hawthorne, which consists of the company's indoor, urban and hydroponic gardening business; and Other, which consists of the company's consumer lawn and garden business in geographies other than the United States and the company's product sales to nurseries, greenhouses and other customers. The company manufactures, markets and sells lawn and garden products in the following categories: lawn care, gardening and landscape, hydroponics, and controls.

SkyWest Inc

SkyWest, through its subsidiaries, SkyWest Airlines, Inc. and ExpressJet Airlines, Inc. (ExpressJet), operates regional airlines in the U.S. Substantially all of the company's flights are operated as Delta Connection, United Express, American Eagle or Alaska Airlines flights under code-share arrangements with Delta, United, American or Alaska, respectively. The company has two operating platforms: SkyWest, which provides regional jet service to airports throughout the U.S., as well as Mexico and Canada; and ExpressJet, which provides regional jet service to airports primarily located in the Eastern and Midwestern U.S., as well as Mexico, Canada and the Caribbean.

Somec

Somec SpA is an Italy-based holding company, which designs and manufactures glass envelopes for cruise ships and special architectural projects. The Company provides products, systems and services based on clients' needs. It supplies prefabricated balconies, balcony sliding and hinged doors, balcony automatic doors, balcony balustrades and partitions, as well as wheelhouse windows, glass walls for public spaces, windscreens, special glazing for solarium, skywalks and skylights, fire-rated doors and glazing. Through its subsidiaries, the Company operates in the shipyards, in dry-docks and navigation to guarantee the product installation, renovation and maintenance. The Company operates in Italy, Germany, Spain, Finland, France, Japan, Australia, North and Central America.

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.

SOUTHWEST AIRLINES CO

Southwest Airlines operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. The company has Boeing 737 aircraft in its fleet and serves destinations in various states, the District of Columbia, the Commonwealth of Puerto Rico, and other near-international countries such as Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. The company principally provides point-to-point service, which allows for direct nonstop routing. The company also provides a suite of digital platforms to support Customers' needs prior to and during the course of their travel.

Spirit Airlines Inc.

Spirit Airlines is an airline that provides travel opportunities principally throughout the domestic United States, the Caribbean and Latin America. The company's ultra low-cost carrier business model provides customers low, unbundled base fares with a range of optional services, allowing customers to choose their options. The majority of the company's tickets are sold through direct channels including online via www.spirit.com, its call center and its airport ticket counters, with www.spirit.com being the primary channel. The company also partners with a number of third parties to distribute its tickets, including online and travel agents and electronic global distribution systems.

Taranis Resources Inc.

Taranis Resources is an exploration stage company. Co. is in the process of acquiring and exploring its mineral properties and has not yet determined whether the properties contain ore reserves that are economically recoverable.

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.

Unimit Engineering

Unimit Engineering Public Company Limited is a Thailand-based company engaged in steel fabrication business. The Company principal activities include designs, shop fabrication, field installations and erections of steel products and construction works according to contracts. Its main products and services cover pressure vessels, machinery parts, storage tanks, structures and piping, and mechanical installations. The pressure vessels include liquid petroleum gas (LPG) tanks, cryogenic tanks, international standards organization (ISO) tanks, columns, towers, and shell and tube heat exchangers. Its machinery parts include fan casings, pre heaters and water treatment parts. The storage tanks consist of atmospheric pressure ionization (API) storage tanks, silos and hoppers. The structures and piping comprise steel structures, piping, platforms and ladders. Its mechanical installations include piping and equipment installations, modules, modifications and shut down works.

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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