Vermilion Compass: Weekly Equity Strategy
Internals remain a top concernThe S&P 500 has continued to test its 200-day moving average throughout last week and again on Monday. The Index closed 0.3% below the moving average yesterday, which is anything but a decisive break. Therefore, we continue to watch the 200-day moving average and the S&P's intraday low of 2,532.69 hit on 2/9/18 as critical support levels. Our chief concern and potential harbinger of further weakness is deteriorating breadth and the percentage of S&P 500 stocks above their 200-day moving average which hit a new low on Monday.
• Breadth signals remain mixed. As referenced above, a top concern we have is that the percentage of S&P 500 stocks above their 200-day moving average, a long-term breadth indicator, is hitting a new low. What we want to see is a higher low in this metric, which is more typical of market bottoms - and something we have yet to see. On a short-term basis, we are currently in an area where a reflex rally is likely... see pages 2-3.
• FAANG stocks losing their bite? Given recent headlines focused on Facebook and Amazon - and more importantly, the resulting negative price and relative strength reactions - we wanted to take a closer look at the FAANG trade. A look under the hood suggests not all FAANG stocks are alike... see pages 4-5.
• Cap-weighted Services take the lead; Leadership changing within Technology; Utilities showing steady improvements. Services takes the top spot among our cap-weighted rankings thanks to continued outperformance from V and MA. Within Technology, we are seeing signs of Semiconductors' leadership status giving way to Software. Bond proxy Utilities' RSR has improved each of the last three weeks from both a cap- and equal-weighted perspective... see page 6.
• 10-Year Treasury moving lower. Given the break below the 2.80% support level, we expect the 2.62% support level (prior resistance) to be tested... see page 7.
• Growth over value; Market cap neutral. No changes here, though we continue to monitor both recommendations for signs of a trend change... see page 7.
Alphabet is a holding company. Through its subsidiaries, the company is engaged in a collection of businesses, which its primary business is Google. The company reports all non-Google businesses collectively as Other Bets. Google's main products and platforms are Android, Chrome, Gmail, Google Drive, Google Maps, Google Play, Search, and YouTube. The company also provides advertisers with tools that help them attribute and measure their advertising campaigns. In addition, Other Bets includes Access, Calico, CapitalG, GV, Verily, Waymo, and X, among others. Other Bets primarily engages in the sales of internet and TV services through Access as well as licensing and research and development services through Verily.
Amazon.com serves consumers through its online and physical stores. The company also manufactures and sells electronic devices, including Kindle, Fire tablet, Fire TV, Echo, and Ring, and the company develops and produces media content. The company operates customer service centers and provides programs that enable sellers to grow their businesses, sell their products in its stores, and fulfill orders through the company The company serves developers and enterprises of various sizes, including start-ups, government agencies, and academic institutions, through its Amazon Web Services segment, which provides a set of global compute, storage, database, and other service offerings. The company also provides services, such as advertising.
Apple designs, manufactures and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related services. The company's products include: iPhone; Mac; iPad; and wearables, home and accessories, which includes AirPods?, Apple TV?, Apple Watch?, Beats? products, HomePod?, iPod touch? and other Apple-branded and third-party accessories. The company's services include: digital content stores and streaming services; AppleCare, which includes AppleCare + (AC+) and the AppleCare Protection Plan; iCloud, which is the company's cloud service; licensing; and other services, which include Apple Arcade?, Apple Card?, Apple News+, and Apple Pay, a cashless payment service.
Facebook is building and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices. The company's products include: Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, which is a place where people can express themselves through photos, videos, and private messaging, and explore their interests in businesses, creators and communities; Messenger and WhatsApp, which are messaging applications; and Oculus, which connects people through its Oculus virtual reality products.
Netflix is engaged in subscription streaming entertainment service including TV series, documentaries and feature films across a variety of genres and languages. Members can watch as much as they want, anytime, anywhere, on any internet-connected screen. Members can play, pause and resume watching, without commercials. Additionally, several members in the United States subscribe to the company's DVD-by-mail service. The company improves its streaming content with a focus on a programming mix of content. The company's members can download a selection of titles for offline viewing. The company operates its business as a global operating segment.
Tesla designs, develops, manufactures, sells and leases electric vehicles and energy generation and storage systems, and provides services related to its products. The company operates as two reportable segments: automotive, which includes the design, development, manufacturing, sales, and leasing of electric vehicles as well as sales of automotive regulatory credits; and energy generation and storage, which includes the design, manufacture, installation, sales, and leasing of solar energy generation and energy storage products, services related to such products, and sales of solar energy system incentives.
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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