Vermilion Compass: Weekly Equity Strategy
THEMES• Bullish big picture. Our bullish outlook, pre-dating last year's Presidential election, remains intact.
• Cyclicals > Defense (mostly). The best relative strength trends and the best-looking patterns are still concentrated in cyclical sectors, primarily Financials, Manufacturing, Tech, and riskier segments of Health Care, such as biotechs. Meanwhile, Consumer Staples continues to tumble down our relative strength rankings, finding itself ahead of only Energy. In this week's Compass we highlight actionable opportunities in three Groups: (1) Electronic Equipment Components, (2) Solar, and (3) Small- and Mid-Cap Broker-Dealers.
• Overweight Health Care (reiteration). Our latest upgrade to overweight (4 weeks ago), Health Care continues to produce an abundance of attractive charts, especially in biotechs (IBB).
• Attractive action in Financials. A variety of Groups exhibit bullish inflections and base breakouts, ranging from banks (FITB) and insurers (PRU) to asset managers (SEIC) and broker-dealers (MS). Overweight.
• Watching for a bounce in energy stocks. Positive momentum divergences are visible throughout the energy sector. Oscillators like the RSI and MACD have not confirmed the XLE's new price lows since May. This tells us that the Sector's downtrend is losing steam, and the likelihood of a rebound is growing. That concerns price.
Energy's relative strength is a different story. The XLE's RS trend broke down yesterday to decade lows. Until this trend (i.e. relative strength) reverses its intact downtrends, and until the Sector rises off the bottom of our weekly rankings—both which could happen this year—we remain underweight.
• Highlighted charts: AVX, BGCP, COWN, CSIQ, ETFC, EUFN, EVR, FSLR, HLI, IBB, ITG, JKS, KBE, KEM, LAZ, LFUS, MC, NJDCY, PJT, RJF, ROG, RUN, SEDG, SPWR, TTDKY, VSH, VSLR, XLE
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AVX is a manufacturer, supplier, and reseller of a line of electronic components, interconnect, sensing and control devices, and related products. Electronic components and connector, sensing and control products manufactured or resold by the company are used in various types of end use products. The company's segments are: Electronic Components, which manufactures and resells a line of ceramic and tantalum electrolytic capacitors, polymer and EDLC capacitors, high energy/voltage power capacitors, passive and active antennas and varistors; and Interconnect, Sensing and Control Devices, which manufactures and resells electronic connectors, interconnect systems, and sensing and control devices.
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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