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

Vermilion Compass: Weekly Equity Strategy

Continue Riding This Bull Market Higher

Since early November 2023 we have laid out our bullish expectations for a year-end rally that we anticipated would continue into the early part of 2024. Here we are in the early part of 2024, and we see every reason to continue riding this bull market higher.

Small- and Mid-Caps Resuming Uptrends. Looking at the big picture on the small-cap Russell 2000 (IWM) and the Vanguard Extended Market ETF (VXF, the entire U.S. market excluding the S&P 500), (1) they had a massive rally from the October 2023 lows until late-December, (2) they broke out of major 1.5+ year bases, (3) they had a healthy pullback from late-December to mid-January, and (4) now appear ready for another leg higher following the proliferation of breakouts discussed in last week's Compass (1/23/24). These major 1.5+ year base breakouts on IWM and VXF suggest significant upside ahead, and we would not be surprised if we saw another rally in the months ahead, similar to what we experienced in November and December 2023. In fact, this is our expectation as long as the IWM and VXF are above $188 and $157 supports... see charts below.
S&P 500, Nasdaq 100, and DJI. Broadly speaking, the S&P 500, Nasdaq 100, and DJI have all been bullish since reversing their respective 3-month downtrends in early- to mid-November 2023, and all are breaking out to all-time highs. This suggests significant upside ahead, as long as the S&P 500 remains above 4800 support.
Downgrading Consumer Staples. Consumer Staples (XLP) and Utilities (XLU) are hitting 20+ year RS lows; continued underperformance from these defensive Sectors has provided a risk-on signal for over a year now. To that end, we are downgrading Staples to underweight following a brief stint at market weight. Additionally, 1-year uptrends remain intact on the Discretionary vs. Staples ratios (XLY vs. XLP, RSPD vs. RSPS)... see pages 3-4.
10-Year Treasury Yield. The 10-year Treasury yield broke below 4.1% yesterday (a key level going back to March 2023) and is now testing bear flag support. This could be the start of a renewed move lower in yields, which would be bullish for equities... see page 4.
Underlyings
Allstate Corporation

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.

Ambac Financial Group Inc.

Ambac Financial Group is a financial service holding company. The company's provides financial guarantee policies through its principal operating subsidiary, Ambac Assurance Corporation and its wholly owned subsidiary Ambac Assurance UK Limited. The company has another wholly-owned subsidiary, Everspan Financial Guarantee Corp. Through its subsidiaries, the company operates in one business segment: financial guarantee insurance, which consists of insurance policies issued provide an unconditional and irrevocable guarantee which protects the holder of a debt obligation against non-payment when due of the principal and interest on the obligations guaranteed.

Assured Guaranty Ltd.

Assured Guaranty is a Bermuda-based holding company that provides, through its operating subsidiaries, credit protection products to the U.S. and international public finance including infrastructure and structured finance markets. The company markets its financial guaranty insurance directly to issuers and underwriters of public finance and structured finance securities as well as to investors in such obligations. The company guarantees obligations issued in the U.S. and the U.K, and also guarantees obligations issued in other countries and regions. The company's financial guaranty direct and assumed businesses provide credit protection on public finance, infrastructure and structured finance obligations.

Axis Capital Holdings Limited

Berkshire Hathaway Inc. Class B

Berkshire Hathaway is a holding company. Co.'s subsidiaries are engaged in several business activities which include: underwriting private passenger automobile insurance; operation of a railroad system in North America; regulated electric and gas utility; manufacturing of products including industrial, consumer and building products; wholesale distribution of groceries and non-food items; provider of services including aviation pilot training, electronic components distribution and retailing businesses, including automotive dealerships; and manufactured housing and related consumer financing, transportation equipment, manufacturing and leasing, and furniture leasing.

Cannae Holdings

Cannae is a holding company engaged in managing and operating a group of companies and investments. The company's segments are: Restaurant Group, which consists of the operations of American Blue Ribbon Holdings, LLC and 99 Restaurants Holdings, LLC; Ceridian, which consists of the operations of the company's subsidiary, Ceridian HCM Holding, Inc., a global human capital management software company; T-System, which consists of the operations of the company's subsidiary, T-System Holdings, LLC, a provider of clinical documentation and coding solutions; and Corporate and Other, which consists of the company's share in the operations of controlled and uncontrolled portfolio companies.

Chubb Limited

Cincinnati Financial Corporation

Cincinnati Financial is a holding company. Through its subsidiaries, the company is engaged in property casualty insurance. The company's market property casualty insurance group includes its subsidiaries, The Cincinnati Casualty Company and The Cincinnati Indemnity Company, which write business, homeowner and auto policies. The company's subsidiary, The Cincinnati Insurance Company conducts the business of the company's reinsurance assumed operations. Other subsidiaries include: The Cincinnati Life Insurance Company, which provides life insurance policies and fixed annuities; and The Cincinnati Specialty Underwriters Insurance Company, which provides excess and surplus lines insurance products.

CNA Financial Corporation

CNA Financial is an insurance holding company. The company's property and casualty and remaining life and group insurance operations are primarily conducted by its subsidiaries. The company's insurance products primarily include commercial property and casualty coverages, including surety. The company's services include warranty, risk management information services and claims administration. The company's commercial property and casualty underwriting operations in the United States consists of field underwriting locations and centralized processing operations which handle policy processing, billing and collection activities and also act as call centers to support service.

Erie Indemnity Company Class A

Erie Indemnity is an attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange), a reciprocal insurer that writes property and casualty insurance. The company's main function as attorney-in-fact is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. The company also acts as attorney-in-fact on behalf of the Exchange with respect to claims handling and investment management services, as well as the service provider for the claims handling, life insurance, and investment management services for its insurance subsidiaries. The company provides policy issuance and renewal services related to the sales, underwriting and issuance of policies.

Fidelity National Financial Inc. - FNF Group

Fidelity National Financial is a provider of title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty products and transaction services to the real estate and mortgage industries. The company has two segments: Title, which consists of the operations of the company's title insurance underwriters and related businesses which provide title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, and home warranty products; and Corporate and Other, which includes the operations of the parent holding company, and the company's real estate technology subsidiaries.

Goosehead Insurance

Goosehead Insurance is a holding company. Through its subsidiaries, the company is an independent personal lines insurance agency. The company provides consumers with insurance coverage. The company's insurance product offerings primarily consist of homeowner's insurance; auto insurance; other personal lines products, including flood, wind and earthquake insurance; excess liability or umbrella insurance; other lines insurance (motorcycle, recreational vehicle and other insurance); commercial lines insurance (general liability, property and auto insurance for small businesses); and life insurance.

Hanover Insurance Group Inc.

The Hanover Insurance Group is a holding company. Through its subsidiaries, the company business operations are property and casualty insurance products and services. The company markets its products and services through independent agents and brokers. The company conducts three operating segments: Commercial Lines, which includes commercial multiple peril, commercial automobile, workers' compensation, and other commercial coverages; Personal Lines, which includes personal automobile, homeowners, and other personal coverages; and Other, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations.

Kingsway Financial Services

Kingsway Financial Services is a holding company. Through its subsidiaries, Co. operates as a merchant bank engaged in the property and casualty insurance business. Co. operates three segments: Insurance Underwriting, which markets automobile insurance products that provide coverage in three main areas: liability, accident benefits and physical damage; Insurance Services, which includes IWS Acquisition Corporation, a licensed motor vehicle service agreement company, and Trinity Warranty Solutions LLC, a provider of warranty products and maintenance support; and Leased Real Estate, which includes Co.'s subsidiary, CMC Industries, Inc., that owns a parcel of real property located in Texas.

Kinsale Capital Group Inc.

Kinsale Capital Group is an insurance holding company. The company focuses on the excess and surplus lines (E&S) market in the U.S., where it can use its underwriting capability to write coverages for hard-to-place small business risks and personal lines risks. The company's segment, Excess and Surplus Lines Insurance segment provides property and casualty insurance products through the E&S market. The company's commercial lines offerings include construction, small business, excess casualty, energy, product liability, general casualty, allied health, professional liability, life sciences, commercial property, management liability, health care, environmental, inland marine, public entity, and commercial insurance.

Mercury General Corporation

Mercury General is an insurance holding company. Through its insurance subsidiaries, the company writes personal automobile insurance. The company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The company provides the following types of automobile coverage: collision, property damage, bodily injury, comprehensive, personal injury protection, underinsured and uninsured motorist, and other hazards. The company provides the following types of homeowners coverage: dwelling, liability, personal property, fire, and other hazards. The company sells its policies through a network of independent agents, its insurance agencies, and directly through internet sales portals.

Progressive Corporation

Progressive is an insurance holding company. The company's insurance subsidiaries and affiliates provide personal and commercial auto insurance, personal residential property insurance, and other insurance and related services. The company's Personal Lines segment writes insurance for personal autos and recreational and other vehicles. The Commercial Lines segment writes auto-related primary liability and physical damage insurance, and business-related general liability and property insurance, each predominately for small businesses. The company focuses on property insurance for homes, condos, manufactured homes, and renters, as well as personal umbrella insurance and primary and excess flood insurance.

Safety Insurance Group Inc.

Safety Insurance Group is a holding company. Through its subsidiaries, the company is a provider of private passenger, commercial automobile and homeowners insurance in Massachusetts. The company's product lines include: Private Passenger Automobile, which provides coverage for bodily injury and property damage to others, no-fault personal injury coverage for the insured/insured's car occupants, and physical damage coverage for an insured's own vehicle for collision or other perils; Commercial Automobile, which provides insurance for commercial vehicles used for business purposes; and Inland Marine, which provides inland marine coverage as an endorsement for all homeowners and business owner policies.

Sangoma Technologies Corp.

SKYWARD SPECIALTY INS GROUP INC

Travelers Companies Inc.

Travelers Companies is a holding company. Through its subsidiaries, the company is engaged in providing commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. The company's segments include: Business Insurance, which provides property and casualty insurance and insurance-related services; Bond and Specialty Insurance, which provides surety, fidelity, management liability, professional liability, and other property and casualty coverages and related risk management services, and certain specialty insurance products; and Personal Insurance, which writes property and casualty insurance covering individuals' personal risks.

United Fire Group Inc.

United Fire Group is an insurance holding company. Through its consolidated subsidiaries and affiliates, the company is engaged in the business of writing property and casualty insurance through a network of independent agencies. The company's insurance company subsidiaries are licensed as a property and casualty insurer in various states, plus the District of Columbia. The company has one business segment: property and casualty insurance, which is comprised of commercial lines insurance, including surety bonds, personal lines insurance and assumed reinsurance. All of the company's property and casualty insurance subsidiaries and its affiliate belong to an intercompany reinsurance pooling arrangement.

W. R. Berkley Corporation

W. R. Berkley is an insurance holding company. The company operates in two segments of the property casualty insurance business: Insurance, which includes commercial insurance business, including excess and surplus lines, admitted lines and specialty personal lines throughout the United States, as well as insurance business in the United Kingdom, Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia; and Reinsurance, which provides reinsurance business on a facultative and treaty basis, primarily in the United States, the United Kingdom, Continental Europe, Australia, the Asia-Pacific region and South Africa.

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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