Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.92 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

"Sell in May" Another Reason to Favor Defensives

The S&P 500 made a high of 4169 last week, tagging our 4165-4200 resistance range. We still believe 4165-4200 will cap upside in 2023, with a reach to 4300-4325 also within the realm of possibility. Considering limited upside in both scenarios, and with the seasonably weaker "sell in May and go away" period approaching, we continue to recommend higher allocations to defensives including Utilities (XLU, RYU), Consumer Staples (XLP), Health Care (XLV, PPH), and gold miners (GDX). Downside targets on the S&P 500 continue to be at the December 2022 lows (3765) and/or the 2022 lows (3490).

Index Overview. The Russell 2000 (IWM) is consolidating between resistance at $180 and support at $170; watch $180 closely, as a breakout would mean more upside ahead with the S&P 500 potentially climbing to the 4300-4325 range. The big concern is that RS on the IWM is at 3-year lows, a risk-off signal that indicates weak breadth. The Nasdaq 100 (QQQ) remains constructive, but we are watching support at $313; a breakdown would mean a pullback has begun. The Dow Jones Industrial Average (DJIA) is approaching longer-term resistance at 34,280 which we expect to cap upside... see page 3.
10- and 30-Year Treasury Yields; U.S. Dollar (DXY). The 10-year and 30-year Treasury yields found short-term resistance at levels discussed in last week's Compass (4/19/23), which were 3.63% and 3.82%, respectively. A break above these levels would likely come alongside a pullback for the equity market indexes, while a move lower in yields would likely mean more short-term upside for equities. Important support continues to be at 3.35%-3.4% on the 10-year yield. The DXY remains above support at $101-101.50; if support holds we would expect a pullback in equities, while a breakdown below $101 would likely be a short-term risk-on signal.
Big Picture Trends. Value appears ready to outperform, with the Russell 1000 value vs. growth ratio reversing its YTD downtrend. Defensives are near 2+ month RS highs. High yield spreads remain elevated. The Bloomberg Commodity index (DJP) got rejected at $32.50 resistance. Watching semiconductors (SOXX, XSD) and banks (KRE, KBE) closely... see chart below and pages 4-6.
Underlyings
Belo Sun Mining Corp.

Belo Sun Mining is a development stage company engaged in the acquisition and exploration of gold properties as well as mining and exploring for minerals. The recoverability of the carrying value of interests in mineral properties and Co.'s continued existence is dependent upon the preservation of its interests in the underlying properties, the discovery of economically recoverable reserves, the achievement of profitable operations, or the ability of Co. to raise additional financing, if necessary, or alternatively upon Co.'s ability to dispose of its interests on an advantageous basis.

Crocs Inc.

Crocs is engaged in the design, development, marketing, distribution, and sale of casual lifestyle footwear and accessories for men, women, and children. The company provides a variety of footwear products including sandals, flips and slides, which the company collectively refer to as sandals, shoes, and boots. The majority of shoes within the company's collection contains Croslite? material. The company's wholesale channel includes domestic and international multi-brand retailers, e-tailers, and distributors; the company's retail channel consists of company-operated stores; and the company's e-commerce channel includes company-operated e-commerce sites and third-party marketplaces.

Deckers Outdoor Corporation

Deckers Outdoor is engaged in designing, marketing and distributing footwear, apparel and accessories. The company markets its products primarily under five brands. The UGG brand is comprised of a line of footwear, apparel and accessories for women, men and children. The HOKA brand is a line of footwear and apparel. The Teva brand's product line includes sandals, shoes, and boots. Sanuk brand is comprised of casual shoe and sandal categories. Other brands consist of Koolaburra by UGG brand, a casual footwear fashion using sheepskin and other plush materials. The company's retail stores are primarily UGG brand concept and UGG brand outlet stores.

EDWARDS LIFESCIENCES CORP

Edwards Lifesciences is engaged in patient-focused medical for structural heart disease, as well as critical care and surgical monitoring. The company is a manufacturer of heart valve systems and repair products used to replace or repair a patient's diseased or defective heart valve. The company is also engaged in hemodynamic and noninvasive brain and tissue oxygenation monitoring systems used to measure a patient's cardiovascular function in the hospital setting. The company's products and technologies are categorized into four main areas: Transcatheter Aortic Valve Replacement, Transcatheter Mitral and Tricuspid Therapies, Surgical Structural Heart, and Critical Care.

Inari Medical

Medtronic Plc

NIKE Inc. Class B

NIKE is engaged in the design, development and marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company focuses its NIKE Brand product offerings in Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear categories. The company markets products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, golf, lacrosse, tennis, walking, and other outdoor activities. The company has license agreements that permit unaffiliated parties to manufacture and sell, using the company-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.

Penumbra Inc.

Penumbra is a healthcare company. The company designs, develops, manufactures and markets medical devices. The company's Neuro products include Penumbra System brand of products that provides a form of mechanical thrombectomy used by specialist physicians to revascularize blood vessels that are blocked by clots in the intracranial vasculature. The company's Vascular products include the Ruby Coil System that consists of detachable coils and is used in clinical applications auch as active extravasations, or the escape of blood into surrounding tissue, selective embolization in patients with visceral aneurysms, embolization in patients with gastrointestinal bleeding, and high flow arterial venous malformations.

Skechers U.S.A. Inc. Class A

Skechers USA designs and markets Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under the Skechers Performance brand name. The company also designs and markets men's and women's Skechers branded lifestyle apparel, and license the Skechers brand to others for accessories, leather goods, eyewear and scrub manufacturers, among others. The company's product offering is sold through department and specialty stores, athletic and independent retailers, boutiques and internet retailers. In addition to wholesale distribution, the company's footwear is available at its direct-to-consumer websites and its own retail stores.

Weyco Group Inc.

Weyco Group is engaged in one line of business: the design and distribution of footwear. The company designs and markets footwear principally for men, but also for women and children, under a portfolio of brand names including: Florsheim, Nunn Bush, Stacy Adams, BOGS, and Rafters. The company's products consist primarily of mid-priced leather dress shoes and casual footwear composed of man-made materials or leather. The company's footwear is available in a range of sizes and widths. In the company's wholesale segment, its products are sold to footwear, department and specialty stores, primarily in the U.S. and Canada. The company's retail segment consisted of brick and mortar retail stores and internet businesses in the U.S.

Wolverine World Wide Inc.

Wolverine World Wide is a designer, marketer and licensor of a range of casual footwear and apparel, performance outdoor and athletic footwear and apparel, kids' footwear, industrial work boots and apparel, and uniform shoes and boots. The company has two segments: Wolverine Michigan Group, consisting of Merrell? footwear and apparel, Cat? footwear, Wolverine? footwear and apparel, Chaco? footwear, Hush Puppies? footwear and apparel, Bates? uniform footwear, Harley-Davidson? footwear and Hytest? safety footwear; and Wolverine Boston Group, consisting of Sperry? footwear and apparel, Saucony? footwear and apparel, Keds? footwear and apparel, and the Kids footwear business.

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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