Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.05 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Conditions Continue To Improve

The Russell 2000 (IWM) has been moving sideways for 7 months between $208 and $234.50, emblematic of the mixed market environment that we still find ourselves in. As long as $208 support holds we remain constructive on the overall market. On the plus side, conditions have been improving over the past two weeks -- not getting worse (more on this below). This increases the odds of a breakout above $234.50 on the IWM in the coming weeks or months, which would signal the start of a new broad-based bull market.

Conditions Improving. Several metrics that we noted were improving last week continue to act as tailwinds for the broad equity market (10-year Treasury yield displays signs of bottoming above 1.13% support, WTI and Brent crude oil are back above the critical $66 and $70 levels, and US high yield spreads leveling-out). The biggest positive change since last week is coming from emerging markets (EEM). We previously noted a potential reversal underway and that a break above $52 on the EEM would be very bullish. This came to fruition and we see it as a very bullish risk-on signal for the broad equity market. We highlight JD.com (JD), which is an attractive and actionable idea within the EM space... see charts below.
Big Picture Trends. We continue to see a mixed market as long as Financials (XLF), Industrials (XLI), Materials (XLB), small-caps (IWM) and micro-caps (IWC) remain below their 1H2021 highs. Growth remains leadership relative to value (Russell 1000 Growth vs. Value), something that we believe is likely to hold true as long as the 10-year remains below 1.45%; stick with growth over value. The gold vs. S&P 500 ratio (GLD vs. SPX) remains in a downtrend, something we view as a risk-on signal for stocks. Additionally, the US dollar remains below the key 93.50 level... see pages 4-5.
S&P 500. Last week we noted to expect some near-term consolidation in the S&P 500 after it hit our 4535 initial target. 4535-4545 remains short-term resistance, however as long as key support at the 50-day MA (4413) holds, we expect to see 4575 followed by 4720. Should the 50-day MA break, it would likely kickstart a 5-15% pullback, and our next support levels to watch would be 4368, 4300, 4257, 4233, and 4164.
Underlyings
Alliance Resource Partners L.P.

Alliance Resource Partners is a natural resource company. The company is a coal producer in the eastern United States. The company markets its coal production to main domestic and international utilities and industrial users. The company has two reportable segments: Illinois Basin, which comprises of multiple operating segments, including operating mining complexes Webster County Coal's Dotiki mining complex, Gibson County Coal's mining complex, River View's mining complex and the Hamilton mining complex; and Appalachia, which comprises of multiple operating segments, including the Mettiki mining complex, the Tunnel Ridge mining complex, the MC Mining mining complex and the Penn Ridge property.

AllianceBernstein Holding L.P.

AllianceBernstein Holding provides research, investment management and related services to a range of clients. The company's principal services include: institutional, which services institutional clients, including private and public pension plans, foundations and endowments, insurance companies, and central banks and governments; retail, which services retail clients, primarily by means of retail mutual funds; private wealth management, which services private clients, including high-net-worth individuals and families, trusts and estates, and partnerships; and Bernstein research services, which services institutional investors, such as pension fund, and hedge fund and mutual fund managers.

Arch Resources Inc. Class A

Arch Coal is a coal producer. The company's main business is the production of thermal and metallurgical coal from surface and underground mines located throughout the United Staets, for sale to utility, industrial and steel producers both in the United States and around the world. The company's segments are based on two lines of business, metallurgical coal and thermal coal, and may include a number of mine complexes. The company's segments are: the Powder River Basin, containing primary thermal operations in Wyoming; the Metallurgical, containing metallurgical operations in West Virginia; and the Other Thermal, containing supplementary thermal operations in Colorado and Illinois.

Ares Management Corporation

Ares Management is a holding company. Through its subsidiaries, the company is an alternative asset manager. The company provides its investors a range of investment strategies. The company's three complementary investment groups are: the Credit Group, which provides solutions for investors seeking to access a range of credit assets, including syndicated loans, bonds, alternative credit products and direct lending markets; the Private Equity Group, which categorizes its investment activities into four strategies consisting of Corporate Private Equity, Infrastructure and Power, Special Opportunities and Energy Opportunities; and the Real Estate Group, which manages equity and debt strategies.

BrightSphere Investment Group Inc.

BrightSphere Investment Group is a holding company. Through its subsidiaries, the company is a global asset management business with interests in a group of boutique investment management firms (Affiliates). The company provides investment management services globally to predominantly institutional investors, in asset classes that include U.S. and global equities, fixed income, real estate, timber and secondary Affiliates' sponsored investment entities. The company's affiliates includes: Acadian Asset Management LLC; Barrow, Hanley, Mewhinney & Strauss, LLC; Campbell Global, LLC; Copper Rock Capital Partners LLC; Investment Counselors of Maryland, LLC; Landmark Partners, LLC; and Thompson, Siegel & Walmsley LLC.

Carlyle Group Inc

Carlyle Group is an asset management firm. The company's Corporate Private Equity segment advises its buyout and middle market and growth capital funds. The company's Real Assets segment advises its active carry funds focused on real estate, energy and infrastructure. The company's Global Credit segment advises a group of funds that pursue investment strategies that span the credit spectrum of liquid credit, illiquid credit, and real assets credit. The company's Investment Solutions segment provides investment opportunities and resources for its investors and clients to build private equity and real estate portfolios through fund of funds, secondary purchases of existing portfolios and managed co-investment programs.

Cohen & Steers Inc.

Cohen & Steers is a holding company. Through its subsidiaries, the company is an investment manager focusing on liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. The company manages three types of investment vehicles: institutional accounts, which represent portfolios of securities it manages for institutional clients; open-end funds, which provide and issue shares continuously as assets are invested and redeem shares when assets are withdrawn; and closed-end funds, which are registered investment companies that have issued a fixed number of shares through public offerings.

Fidus Investment Corp

Fidus Investment operates as an externally managed, closed-end, non-diversified business development company. The company's investment objective is to provide risk-adjusted returns by generating both current income from its debt investments and capital appreciation from its equity related investments.

First Industrial Realty Trust Inc.

First Industrial Realty Trust is a self-administered and fully integrated real estate company which owns, manages, acquires, sells, develops and redevelops industrial real estate. The company is a real estate investment trust. The company's in-service portfolio includes all properties that have reached stabilized occupancy (defined as properties that are 90% leased), (re)developed properties upon the earlier of reaching 90% occupancy or one year from the date construction is completed and acquired properties that are at least 75% occupied at acquisition. The company's operations are conducted primarily through First Industrial, L.P., of which the company is the sole general partner.

Innovative Industrial Properties Inc

Innovative Industrial Properties is a holding company. Through its subsidiaries, the company is a real estate investment trust focused on the acquisition, ownership and management of industrial properties leased to state-licensed operators for their regulated state-licensed cannabis facilities. The company leases its properties on a triple-net lease basis, where the tenant is responsible for various aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance. The company conducts its business through a real estate investment trust, in which the company's properties are owned by its operating partnership, IIP Operating Partnership, LP.

JD.com Inc. Sponsored ADR Class A

Netflix Inc.

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.

Peabody Energy Corporation

Peabody Energy is a coal company, engaged in the mining of thermal coal for sale primarily to electric utilities and metallurgical coal for sale to industrial customers. The company owns interests in several coal mining operations located in the U.S. and Australia. The company has a majority interest in several of those mining operations and an equity interest in Middlemount Coal Pty Ltd. (Middlemount), which owns the Middlemount Mine in Queensland, Australia. In addition to its mining operations, the company markets and brokers coal from other coal producers, both as principal and agent, and trade coal and freight-related contracts through trading and business offices in the U.S., Australia, China, and the U.K.

Prologis Inc.

Prologis is a self-administered and self-managed real estate investment trust and is the sole general partner of Prologis, L.P. The company owns, manages and develops logistics facilities, with a focus on the consumption side of the global supply chain. Most of the company's properties in the United States are wholly owned, while its properties outside the United States are primarily held in co-investment ventures. The company has two segments: Real Estate Operations, which represents the ownership and development of operating properties, and includes land held for development and properties under development; and Strategic Capital, which represents the management of unconsolidated co-investment ventures.

Public Storage

Public Storage is a real estate investment trust. The company's business activities include: Self-storage Operations, which acquires, develops, owns and operates self-storage facilities that provide storage spaces for lease on a month-to-month basis, for personal and business use; Ancillary Operations, which reinsures policies against losses to goods stored by customers in the company's self-storage facilities and sells merchandise, mainly locks and cardboard boxes, at its self-storage facilities; and Investment in PS Business Parks Inc. (PSB), in which the company has an equity interest in PSB that owns, operates, acquires and develops commercial properties, mainly multi-tenant flex, office, and industrial parks.

Rexford Industrial Realty Inc.

Rexford Industrial Realty is a holding company and a self-administered and self-managed real estate investment trust. Through its controlling interest in its sole general partner, Rexford Industrial Realty, L.P. and its subsidiaries, the company owns, manages, leases, acquires and develops industrial real estate primarily located in Southern California infill markets.

STAG Industrial Inc.

STAG Industrial is a real estate operating company focused on the acquisition and operation of single-tenant industrial properties. The company owns interests in all of its properties and conduct substantially all of its business through its operating partnership, STAG Industrial Operating Partnership, L.P.

Terreno Realty Corporation

Terreno Realty is an internally managed real estate investment trust. The company acquires, owns and operates industrial real estate in six main coastal United States markets: Los Angeles, Northern New Jersey/New York City, San Francisco Bay Area, Seattle, Miami, and Washington, D.C. The company invests in several types of industrial real estate, including warehouse/distribution, flex (including light industrial and research and development) and transshipment and improved land. The company targets functional buildings in infill locations that may be shared by multiple tenants and that cater to customer demand within the various submarkets in which the company operates.

Tesla Inc

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.

Victory Capital Holdings Class A

Virtus Investment Partners Inc.

Virtus Investment Partners is a provider of investment management and related services to individuals and institutions. The company's retail investment management services are provided to individuals through products consisting of United States 1940 Act mutual funds and Undertaking for Collective Investment in Transferable Securities, exchange traded funds, closed-end funds and retail separate accounts. Institutional investment management services are provided through separate accounts and pooled or commingled structures to a variety of institutional clients. The company also provides subadvisory services to other investment advisers and serves as the collateral manager for structured products.

Warrior Met Coal Inc.

Warrior Met Coal is a holding company. Through its subsidiaries, the company is a producer and exporter of met coal. The company sells its coal product to steel producers in Europe and South America. The company's mining operations consist of two underground met coal mines in Southern Appalachia's coal seam (Mines No. 7 and No. 4) and other surface met and thermal coal mines. The company's natural gas operations remove and sell natural gas from the coal seams owned or leased by the company and others as a byproduct of coal production. The company's degasification operations improve mining operations and safety by reducing natural gas levels in its mines. The company also owns mineral rights for recoverable reserves at its Blue Creek Energy Mine.

Yanzhou Coal Mining Co. Ltd. ADS

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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