Report
Dave Nicoski ...
  • Ross LaDuke
EUR 47.39 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Today's Fed Day to Determine Next Big Market Move?

The S&P 500, Russell 2000 (IWM), and Nasdaq 100 (QQQ) continue to have trouble breaking above their respective 200-day MAs and YTD downtrends, while the Dow Jones Industrials Average (DJIA) has been unable to sustain a breakout above 34,280. With that said, all four of these indexes are consolidating within tight ranges just below the aforementioned resistance levels, building energy for the eventual breakdown or breakout. We continue to recommend shifting exposure to defensives (Staples, Utilities, Health Care) and/or taking profits following this rally, but we cannot rule out the potential for major upside breakouts. Below we discuss specific levels to watch.

Levels to Watch. It has become clear that 4100 is resistance to watch on the S&P 500, while support continues to be at 3910; the S&P 500 has been within this range for a month. While we expect a breakdown below 3910, we cannot get too bearish until 3910 actually breaks (if it does, a test of the YTD lows is likely). At the same time, a breakout above 4100 would be our signal to buy, as it would mean this rally is likely to continue. On the Russell 2000 (IWM), support is at $177.50 with resistance at $190. On the Nasdaq 100 (QQQ), support is at $279 with resistance at $297.50. We believe there is a high likelihood today's Fed announcement results in breakouts/breakdowns above/below these levels... see chart below and page 3.
Reasons Why We Lean Breakdown. The DJIA shows a failed breakout at 34,280, and Financials (XLF) also show a failed breakout at $36; if the DJIA and XLF are below these levels, it suggests lower prices ahead. The U.S. dollar (DXY) remains above 6-year base support at $103-103.70, a level we have discussed for months; only a break below $103 on the DXY would lead us to get more bullish on equities. RS for defensives shows investors becoming more risk averse; RS for Utilities (XLU) is at 2-month highs, RS for Consumer Staples (XLP) is testing 7-month highs, and RS for Health Care (XLV) is testing 7-year highs. RS is deteriorating for small-caps, a risk-off signal. Banks (KRE, KBE) continue to deteriorate in terms of price and RS... see pages 3-5.
Underlyings
Abercrombie & Fitch Co. Class A

Abercrombie & Fitch, through its subsidiaries, is a retailer which primarily sells its products through its wholly-owned store and direct-to-consumer channels, as well as through various third-party wholesale, franchise and licensing arrangements. The company provides an assortment of apparel, personal care products and accessories for men, women and children under the Hollister, Abercrombie & Fitch and abercrombie kids brands. The company has operations in North America, Europe, Asia and the Middle East. The company's operating segments are brand-based: Hollister and Abercrombie, the latter of which includes the company's Abercrombie & Fitch and abercrombie kids brands.

American Eagle Outfitters Inc.

American Eagle Outfitters is a multi-brand retailer. The company operates retail stores and online at www.ae.com and www.aerie.com. The company provides a range of apparel and accessories for men and women under the American Eagle Outfitters brand, and intimates, apparel and personal care products for women under the Aerie brand. The company operates stores in the U.S., Canada, Mexico, Hong Kong, and China. The company also has license agreements with third-parties to operate American Eagle Outfitters and Aerie stores throughout Asia, Europe, India, Latin America and the Middle East. The company also operates two other brands, Tailgate, a vintage, sports-inspired apparel brand, and Todd Snyder New York, a menswear brand.

Arch Capital Group Ltd.

Buckle Inc.

The Buckle is a retailer of casual apparel, footwear, and accessories for young men and women. The company markets a selection of mainly brand name casual apparel including denims, other casual bottoms, tops, sportswear, outerwear, accessories, and footwear. The company provides denims from brands such as Miss Me, Rock Revival, KanCan, Flying Monkey, and Levi's. The company also incorporates services such as hemming, gift wrapping, layaways, a guest loyalty program, the Buckle private label credit card, personalized stylist services, and an order system that allows stores to obtain specifically requested merchandise from other the company stores or from the company's online order fulfillment center.

BURLINGTON STORES INC.

Burlington Stores is a holding company. Through its indirect subsidiary, Burlington Coat Factory Warehouse Corporation sells merchandise including: women's ready-to-wear apparel, accessories, footwear, menswear, youth apparel, baby, home, coats, beauty, toys and gifts. The company operates stores under the names Burlington Stores, Cohoes Fashions, Super Baby Depot, MJM Designer Shoes and an online store. Cohoes Fashions provides products similar to those offered by Burlington Stores. MJM Designer Shoes provides moderately priced designer and fashion shoes. The Super Baby Depot stores provides baby clothing, accessories, furniture and other merchandise in the middle to higher price range.

Dixie Group

Dixie Group markets, manufactures and sells finished carpet, rugs and vinyl tile in the domestic floorcovering market. The company's brands include: Fabrica, which markets and manufactures residential carpet and custom rugs; Masland Residential, which markets and manufactures design-driven carpets and rugs for the residential marketplace; Dixie Home, which markets an array of residential tufted broadloom and rugs to selected retailers and home centers under the Dixie Home and private label brands; and Atlas Masland Contract, which markets to the architectural and specified design community and directly to commercial end users, as well as to consumers through floorcovering retailers.

Enstar Group Limited

Everest Re Group Ltd.

Everest Re Group is a holding company. Through its subsidiaries, the company underwrites reinsurance and insurance in the United States, Bermuda and international markets. The company's segments are: U.S. Reinsurance, which writes property and casualty reinsurance and specialty lines of business, including Marine, Aviation, Surety and Accident and Health business; International, which focuses on the international reinsurance markets; Bermuda, which writes property and casualty reinsurance and property and casualty reinsurance; and Insurance, which writes property and casualty insurance through agents, wholesale and retail brokers and surplus lines brokers in the United States, Canada, Ireland, Bermuda.

Gap Inc.

The Gap is an apparel retail company. The company provides apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands. The company has stores in the U.S., Canada, the U.K., France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico, and has franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, and Banana Republic stores throughout Asia, Europe, Latin America, the Middle East, and Africa. Under these agreements, third parties operate stores that sell apparel and related products under the company's brand names.

Invesco QQQ Trust, Series 1

iShares Russell 2000 Index Fund

Reinsurance Group of America Incorporated

Reinsurance Group of America is an insurance holding company. Through its subsidiaries, the company is a provider of life and health reinsurance and financial solutions. The company is engaged in providing reinsurance, which includes individual and group life and health, disability, and critical illness reinsurance. The company also provides financial solutions, which includes longevity reinsurance, asset-intensive products, primarily annuities, financial reinsurance, capital solutions and stable value products. The company has five geographic-based and business-based operational segments: United States and Latin America, Canada, Europe, Middle East and Africa, Asia Pacific, and Corporate and Other.

RENAISSANCERE HOLDINGS LTD.

RenaissanceRe Holdings is a holding company. Through its subsidiaries, the company is a global provider of reinsurance and insurance. The company's segments are: Property, which includes its catastrophe class of business, comprising excess of loss reinsurance and excess of loss retrocessional reinsurance to insure insurance and reinsurance companies against natural and man-made catastrophes, and its other property class of business, comprising proportional reinsurance, property per risk, property (re)insurance, binding facilities and regional United States multi-line reinsurance; and Casualty and Specialty, in which the company provides its casualty and specialty reinsurance products and excess of loss coverage.

Rosinter Restaurants Holding Ord Shs

Rosinter Restorants Holding PAO (Rosinter Restaurants Holding PJSC) is a Russia-based company engaged in the operation of restaurant. The Company offers Italian, Japanese, American and local Russian cuisine. It operates IL Patio pizza pasta grill, Planet Sushi, American Bar and Grill, Cafe Des Artistes, Pechki-Lavochki and 1-2-3 Cafe, as well as T.G.I. Friday's and Costa Coffee. Operations are carried out in the Russian Federation, Ukraine, Belarus, Kazakhstan, Latvia, the Czech Republic, Poland and Hungary. The Company operates through numerous subsidiaries and affiliated companies located domestically, as well as abroad. On September 4, 2014, the Company sold 51% stake in Rosinter Restaurants Samara ZAO to Restorannaya Ob'yedinennaya Set' i Noveyshiye Tekhnologii Evroamerikanskogo Razvitiya Restorants OOO.

Select Sector SPDR-Consumer Staples

Select Sector SPDR-Financial

Select Sector SPDR-Utilities

Tillys

Tilly's is a retailer of casual apparel, footwear and accessories for young men, young women, boys and girls. The company's stores are located in malls, lifestyle centers, power centers, community centers, outlet centers and street-front locations. Customers may also shop online, where the company features the same assortment of product as is carried in its stores, supplemented by additional online-only styles. The company provides a mix of merchandise for young men, young women, boys and girls across the apparel, footwear and accessories categories. The company's apparel merchandise includes branded, fashion, and core styles for tops, outerwear, bottoms, and dresses.

TJX Companies Inc

TJX Companies is an off-price apparel and home fashions retailer. The company's segments comprised of: Marmaxx, which sells family apparel (including footwear and accessories), home fashions (including home basics, decorative accessories and giftware) and other merchandise; HomeGoods, which provides a range of home fashions, including home fashions, including furniture, rugs, lighting, soft home, decorative accessories, tabletop and cookware as well as pet, kids and gourmet food departments; TJX Canada, which operates the Winners, HomeSense and Marshalls chains in Canada; and TJX International, which operates the T.K. Maxx and HomeSense chains in Europe and the T.K. Maxx chain in Australia.

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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