Report
Dave Nicoski ...
  • Ross LaDuke
EUR 240.13 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Weakening Dollar, Strengthening Commodities

We continue to see increasingly more reasons to be bullish than not, and we believe the path of least resistance is higher for US equities. We also continue to recommend a “buy the dip” strategy. Below we outline new developments, including more signs that the US dollar is rolling over, bullish developments for gold & gold miners, and major breakouts for the Consumer Discretionary Sector.

• Weak Dollar, Strong Commodity. The US dollar (DXY) continues to show signs of breaking down just as the Bloomberg Commodity Index (BCOM) makes a bullish inflection as the traditional weak dollar/strong commodity relationship plays out. We continue to expect a gradual weakening of the dollar which should provide a tailwind for commodities. We also view the bottom in commodities as a positive for the economy/equities since it indicates improving demand for finished products and is a sign that manufacturing is improving. Higher commodity prices are also showing up in improving Sector Relative Strength Rankings (RSR) for Energy and Materials... see charts below and page 2.

• Gold is Bullishly Inflecting. In June we turned long-term bullish on gold after it broke above major resistance following a 6-year basing pattern. We remain bullish long-term, and we recommend using last week's bullish reversal as an opportunity to add exposure to both the commodity and gold miners (GDX, GDXJ)... see pages 3-4.

• Consumer Discretionary Breakout. Cap- and equal-weighted Discretionary (XLY and RCD, respectively) exhibit breakouts topside major resistance. Participation has been lacking from this important cyclical Sector, so these meaningful breakouts are a welcomed sight and help support our belief that the equity market is in the early stages of a broad-based advance. AMZN is showing signs of breaking out from its 15-month slump, which will be a major tailwind for the cap-weighted Sector... see pages 5-6.

• 10-Year Treasury. The 10-year yield continues to show signs of bottoming as it forms an ascending triangle pattern. 1.95% remains a key resistance level... see page 6.

In today's report we highlight attractive Groups and stocks within Materials and Energy: MA-23 Copper, MA-29 Gold, South Africa, MA-30 Silver, Platinum, and EN-14 Oil & Gas Equip./Svcs., Large-Cap... see pages 14-29.
Underlyings
Americas Silver Corp

Americas Silver is engaged in the acquisition, exploration, development and exploitation of mineral resource properties in Mexico and the United States. Co. explores for gold, silver, zinc, copper, and lead deposits. The 100% owned Nuestra Senora Mine in the Cosala District of Sinaloa State, Mexico, has flexible mining methods and diversified metal production. It has a mechanized underground operation and a processing facility permitted for expansion to 4,000 tonnes per day. In Idaho, Co. operates the 100%-owned producing Galena Complex which was added following the business combination with U.S. Silver. The Galena Complex has recorded production of over 220 million ounces of silver.

AngloGold Ashanti Ltd. ADS

Baker Hughes Company Class A

Baker Hughes is an energy technology company. The company's segments are: Oilfield Services, which provides products and services for onshore and offshore operations ranging from drilling, evaluation, completion, production, and intervention; Oilfield Equipment, which provides products and services for the subsea, offshore surface and onshore operating environments; Turbomachinery and Processing Solutions, which provides equipment and related services for mechanical-drive, compression and power-generation applications; and Digital Solutions, which includes condition monitoring, industrial controls, non-destructive technologies, measurement, sensing, and pipeline solutions.

Coeur Mining Inc.

Coeur Mining is a gold and silver producer, as well as a zinc and lead producer, with mines located in the U.S., Canada, Mexico, and exploration projects in North America. The company operates the Palmarejo complex, and the Rochester, Kensington, Wharf and Silvertip mines. The company's dore, as well as the concentrate product produced by the Wharf mine, is refined into gold and silver bullion and then sells to multi-national banks, bullion trading houses, and refiners across the globe. The company's gold concentrate products from the Kensington mine and the zinc and lead concentrates from the Silvertip mine are sold under a variety of agreements with smelters and traders.

Core Laboratories NV

Core Laboratories is a holding company. Co. is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. Co. has three segments: reservoir description, which encompasses the characterization of petroleum reservoir rock, fluid and gas samples; production enhancement, which includes products and services relating to reservoir well completions, perforations, stimulations and production; and reservoir management, which combines and integrates information from reservoir description and production enhancement services to increase production and improve recovery of oil and gas from its clients' reservoirs.

DRDGOLD Ltd. ADS

First Majestic Silver Corp.

First Majestic Silver is engaged in the business of silver production, development, exploration, and acquisition of mineral properties with a focus on silver production in Mexico.

Fortuna Silver Mines Inc.

Fortuna Silver Mines is engaged in the mining, exploration, extraction and processing of silver, gold and zinc mine properties in southern Peru and Mexico.

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.

Gold Fields Ltd. ADS

Halliburton Company

Halliburton assists its customers throughout the lifecycle of the reservoir, from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion and optimizing production throughout the life of the asset. The company's segments are: Completion and Production, which delivers cementing, stimulation, intervention, pressure control, specialty chemicals, artificial lift and completion products and services; and Drilling and Evaluation, which provides field and reservoir modeling, drilling, evaluation and wellbore placement solutions that enable customers to model, measure, drill and optimize their well construction activities.

Harmony Gold Mining Co Ltd (ADR)

Hecla Mining Company

Hecla Mining and its subsidiaries discover, acquire and develop mines and other mineral interests and produce and market concentrates, carbon material and dore containing silver, gold, lead and zinc. The company has five units: the Greens Creek, Lucky Friday, Casa Berardi, San Sebastian and Nevada Operations units. The company produces zinc, lead and bulk flotation concentrates at its Greens Creek unit and lead and zinc flotation concentrates at its Lucky Friday unit, each of which the company sells to custom smelters and metal traders on contract. The company also produces unrefined gold and silver bullion bars (dore), loaded carbon and precipitates at its Casa Berardi, San Sebastian and Nevada Operations units.

NOV Inc.

National Oilwell Varco is an independent provider of equipment and technology to the upstream oil and gas industry. The company's segments include: Wellbore Technologies, which designs, manufactures, rents, and sells a variety of equipment and technologies used to perform drilling operations; Completion and Production Solutions, which designs, manufactures, and sells equipment and technologies for hydraulic fracture stimulation, well intervention, onshore production, and offshore production; and Rig Technologies, which designs, manufactures and sells land rigs, offshore drilling equipment packages, and drilling rig components that mechanize and automate the drilling process and rig functionality.

Pan American Silver Corp.

Pan American Silver is engaged in the production and sale of silver, gold and other base metals including copper, lead and zinc as well as other related activities, including exploration, extraction, processing, refining and reclamation. Co.'s primary product (silver) is produced in Peru, Mexico, Argentina and Bolivia. Additionally, Co. has project development activities in Peru, Mexico and Argentina, and exploration activities throughout South America and Mexico.

RPC Inc.

RPC is a holding company for several oilfield services companies. The company provides oilfield services and equipment to oil and gas companies engaged in the exploration, production and development of oil and gas properties throughout the U.S., including the southwest, mid-continent, Gulf of Mexico, Rocky Mountain and Appalachian regions, and in selected international markets. The services provided are: Technical Services, which include pressure pumping, downhole tools, coiled tubing, snubbing, nitrogen, well control, wireline services, and fishing; and Support Services, which include rental tools, oilfield pipe inspection services, well control school and energy personnel international.

Schlumberger NV

Schlumberger provides technology for reservoir characterization, drilling, production and processing to the oil and gas industry. The company has four segments: Reservoir Characterization, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells; Production, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs; and Cameron, which consists of the principal technologies involved in pressure and flow control for drilling and intervention rigs, oil and gas wells and production facilities.

Sibanye Stillwater

Silvercorp Metals

Silvercorp Metals is engaged in the operation and development of and in the acquisition and exploration for high-grade silver-related mineral properties in the People's Republic of China. The Ying Mining District consists of four mines (SGX, HPG, TLP, and LM) and is Co.'s primary source of production.

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.

SSR Mining Inc

SSR Mining is engaged in the acquisition, exploration, development and operation of silver-dominant resource properties located in the Americas. Co.'s strategic focus is to optimize the production of silver from its Pirquitas mine in Argentina, and to advance other principal development and exploration projects including San Luis in Peru, Diablillos in Argentina, and Pitarrilla and San Agustin in Mexico. In addition to its principal projects, Co. holds a geologically-diverse portfolio of other predominantly silver projects in various stages of exploration.

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.

Wheaton Precious Metals Corp

Wheaton Precious Metals is engaged in the silver mining business.

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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