Vermilion Compass: Weekly Equity Strategy
• Bullish big picture, but keep an eye on financials. Our message from last Tuesday carries over into this week: watch financials. They hold the key to the market's next move.Specifically, we are monitoring the XLF, whose daily chart still exhibits a potential, 6-month top pattern. The ETF has avoided, so far, a breakdown below the $23 level and 200-day MA. But it's premature to give the all clear.
We're left with two possible outcomes: (1) XLF breaks below $23 and the 200-day, producing a correction back toward the 2015 highs (approx. $20). This would likely pull the broad market lower. Or (2), XLF rallies above $24, nullifying the pattern and setting up financials (and the market) for another leg higher.
With the ETF closing yesterday at $23.39, we're stuck in wait-and-see mode.
Beyond financials, plenty of attractive trends are on display in a variety of Groups, Sectors, and international markets, including:
• Asset managers: Led by BLK, bullish inflections are the norm in this Group. IVZ is bottoming.
• Aluminum: CENX is leading a technical turnaround in aluminum. AA is following, and CSTM is bottoming.
• Rails: Rails are leadership within Transports. Uptrends remain intact. KSU is breaking out.
• Airlines: Airlines, benefitting from suppressed energy prices, remain strong. The majors--DAL, UAL, and AAL--are breaking out. Same for LUV and JBLU in our Regional/Low-Cost Group. ALK is testing support.
• Homebuilders: Homebuilders, led by NVR and MDC, are trading near 52-week highs.
• Tech Sector: Though well above support, the Sector's 16-year relative strength highs mandate an overweight.
• Manufacturing Sector: The Sector is inflecting toward all-time relative strength highs. Stay overweight.
• International markets: Europe broke out; EM is advancing toward decade highs; Japan broke out last week.
• Theme of the Week: Health Care. Actionable ideas in three Health Care Groups: Bioscience Research & Development (HC-18), Dental (HC-19), and Orthopedic Implant Devices (HC-21)... see pages 6-17
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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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