Vermilion Compass: Weekly Equity Strategy
Uptrend resumes; outlook remains bullishTechnicals continue to endorse a bullish outlook. And with the S&P 500 breaking out to new highs yesterday, and insurance stocks recovering from last week, we are benefiting from renewed clarity following the muddled, past two months.
Encouraging signs fall into two categories: (1) continued strength in leading Sectors/Groups, and, more recently, (2) stabilization in lagging Sectors/Groups.
The stronger get stronger:
• Tech continues to lead. No changes here. Led by semis and software, the Sector is breaking out to new price and relative strength highs. Stick with this trend. In today's report we highlight actionable semi names like ADI, MU, and SWKS... see page 3
• Biotech breakouts. One of our favorite themes, biotechs continue to emerge from base patterns, most notably in names like AMGN, BIIB, and CELG. This represents both (1) a buying opportunity, and (2) a confirmation of the risk-on environment... see page 3
• Other cyclical Groups. Attractive relative trends are also visible in key cyclical Groups like casinos (WYNN), rails (NSC), and truckers (LSTR)... see page 3
Laggards are improving:
• Retailers exhibit improving internals. First, we remain underweight retailers; as a whole, their relative trends still point lower. That said, signs of latent strength are visible from two perspectives: (1) the uptick in the number of bottom patterns, though they have been difficult to monetize given most are confirmed by sudden, overnight gaps higher; and (2) improving internals, where positive divergences are visible in the percentage of the Retail SPDR's (XRT) stocks trading above their 200-day moving averages.
• Energy exhibits positive momentum divergences. Another underweight, energy looks to be close to an intermediate-bottom. Looking at the XLE, momentum indicators like the MACD are not confirming the latest price lows, indicating the Sector's decline is losing steam. We are watching for confirming breakouts, which remain mostly elusive right now, with the exception of names like COG, CVX, and RES.
In today's report we highlight actionable ideas in the following Groups:
• Semis... see page 14-20
• Insurers... see page 8-13
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Allstate is a holding company. Through its subsidiaries, the company is engaged in the property and casualty insurance business. The company's segments include: Allstate Protection, which provides private passenger auto, homeowners, other personal lines and commercial insurance; Service Businesses, which includes SquareTrade that provides consumer protection plans and related technical support; Allstate Life, which provides interest-sensitive and variable life insurance products, as well as distributes non-proprietary retirement products; and Allstate Benefits, which provides voluntary benefits products, including life, accident, critical illness, and other health insurance 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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