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

Vermilion Compass: Weekly Equity Strategy

Volatility & Consolidation Continues

Our key "lines in the sand" were tested last week, including 4257 on the S&P 500, $334 on the Nasdaq 100 (QQQ), 33,250 on the Dow Jones Industrial Average, and $102.50 on the S&P 600 Small Caps (IJR). After a brief dip below these levels, buyers immediately stepped up and reclaimed these supports. It was a clear win for the bulls (for now), and we are constructive as long as we are above these levels. Moving forward we continue to expect more volatility and consolidation between 4257 and 4590-4595 on the S&P 500, and between $334 and $367 on the Nasdaq 100 (QQQ)... see charts below. In order to give us confidence that the bottom is in, we would like to see a washout in the form of a 90%+ downside volume day, followed by a bullish breadth thrust in the form of a 90%+ upside volume day.

Sector Relative Strength Rankings. Our favorite themes are value, natural resources, some reopening, and defensives. That means Energy (oil & gas, coal), Materials (metals & mining, fertilizer), Financials (banks, insurance), Manufacturing (aerospace/defense), Transportation (shipping), Consumer Discretionary (hotels/resorts/restaurants/casinos), Consumer Staples, and Utilities... see pages 2-3.
Positive Developments. Small-caps continue to outperform and RS on the S&P 600 Small-Caps (IJR) displays a 1-year bullish reversal. Bitcoin is back above our $39,500 line in the sand. 20+ year Treasuries (TLT) remain in a relative strength downtrend (vs. SPX). Speculative growth areas including Solar (TAN) and Hydrogen/Fuel Cells (HDRO) display early signs of bottoming. These are all things that we would not expect to see if the stock market was headed for new lows... see pages 4-5.
Concerns. 10- and 30-year Treasury yields are violating 2.5-3-month uptrends, a clear sign of risk aversion. High yield spreads remain above the December highs (375 bps). Short-term (3-4-month) RS uptrends remain intact for Staples (XLP) and Utilities (XLU). The cap- and equal-weighted Discretionary vs. Staples ratios (XLY vs. XLP and RCD vs. RHS) remain in 3-month downtrends. These are all things that suggest we are not out of the woods and the stock market could see additional downside... see pages 6-8.
Underlyings
Arcadian Partners LP

CF Industries Holdings Inc.

CF Industries Holdings is a global fertilizer and chemical company. The company's principal nitrogen fertilizer products are anhydrous ammonia, granular urea, urea ammonium nitrate solution and ammonium nitrate. The company's other nitrogen products include diesel exhaust fluid, urea liquor, nitric acid and aqua ammonia, which are sold primarily to its industrial customers, and compound fertilizer products, which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. The company serves its customers in North America through its production, storage, transportation and distribution network.

DHT Holdings Inc.

Diana Shipping Inc.

Diana Shipping is a holding company. Through its subsidiaries, Co. is a global provider of shipping transportation services. Co. specializes in transporting dry bulk cargoes, including such commodities as iron ore, coal, grain and other materials along worldwide shipping routes. As of Dec 31 2017, Co.'s operating fleet consisted of 50 dry bulk carriers, of which 22 are Panamax, five are Kamsarmax, five are Post-Panamax, fourteen are Capesize and four are Newcastlemax vessels, having a combined carrying capacity of approximately 5.8 million dwt.

Frontline Ltd.

General Dynamics Corporation

General Dynamics is an aerospace and defense company. The company has five operating segments: Aerospace, which provides a family of Gulfstream aircraft and services for business aircraft produced by Gulfstream and other original equipment manufacturers; Combat Systems, which provides combat vehicles, weapons systems and munitions; Information Technology, which provides information technology (IT) services, IT infrastructure modernization and professional services; Mission Systems, which provides mission-critical products and systems; and Marine Systems, which designs and builds nuclear-powered submarines, surface combatants, and auxiliary and combat-logistics ships.

Golar LNG Limited

Golar LNG is a midstream liquefied natural gas (LNG) company based in Bermuda. Co. is engaged in the transportation, regasification, liquefaction and trading of LNG. Through its subsidiaries and affiliates, Co. is engaged in the acquisition, ownership, operation and chartering of LNG carriers and floating storage regasification units (FSRUs), and the development of liquefaction projects such as Floating Liquefaction Natural Gas Vessels. Co. owns and operates a fleet of 19 LNG carriers and seven FSRUs, and under management agreements operates Golar LNG Partner LP's fleet of six FSRUs and four LNG carriers.

Huntington Ingalls Industries Inc.

Huntington Ingalls Industries is a military shipbuilding company and a provider of services to partners in government and industry. The company's segments include: Ingalls Shipbuilding, which designs and constructs non-nuclear ships for the United States Navy and United States Coast Guard, including amphibious assault ships, expeditionary warfare ships, surface combatants, and national security cutters; Newport News Shipbuilding, which is designing and constructing nuclear-powered ships, such as aircraft carriers and submarines, and the refueling and overhaul and the inactivation of such ships; and Technical Solutions, which includes businesses that are focused on life-cycle sustainment services.

International Seaways Inc.

Intrepid Potash

Mosaic Company

Mosaic is a producer and marketer of concentrated phosphate and potash crop nutrients. The company is organized into three reportable business segments: Phosphates, which owns and operates mines and production facilities in Florida that produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana that produce concentrated phosphate crop nutrients; Potash, which mines and processes potash in Canada and the United States and sells potash in North America and internationally; and Mosaic Fertilizantes, which produces and sells concentrated phosphates crop nutrients, phosphate-based animal feed ingredients and potash fertilizer.

Navigator Holdings

Northrop Grumman Corporation

Northrop Grumman is a security company. The company's segments include: Aerospace Systems, which is engaged in the design, development, integration and production of manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems; Innovation Systems, which is engaged in the design, development, integration and production of flight, armament and space systems; Mission Systems, which is engaged in end-to-end mission solutions and multifunction systems; and Technology Services, which is engaged in delivering solutions and services in support of mission-critical networks and systems.

Scorpio Tankers Inc.

SFL Corporation Limited

Sociedad Quimica y Minera de Chile S.A. Series B ADS

Teekay Tankers

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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