Vermilion Compass: Weekly Equity Strategy
Primary trend remains bullish; stay the courseThe primary trend remains bullish, and the usual suspects continue to lead: growth (Tech and FANG), homebuilders, industrials, etc. Yet unusually bullish price patterns continue to develop in long-term laggards like energy (esp. E&Ps), retail (XRT), and engineering & construction (JEC). We view this stabilization, or participation, in weak segments as a boost to the market's breadth, a point of contention in recent months for some, who have pointed out that fewer stocks are trading above their 200-day moving averages.
The bullish outlook's supporting cast also includes:
• Primary indexes continue to trade above support. From the NASDAQ 100 to the Russell 2000, the primary trend remains bullish... see page 3
• Growth continues to lead. Entrenched leadership, namely Tech, continues to outperform, and, so far, any correction action has been short-lived, a signal that this trend is in no want of demand... see page 3
• Consumer discretionary > staples. Consumer discretionary, which has recently staged a comeback, continues to outperform staples. This ratio, which we view as a barometer of the market's risk appetite, is breaking out to decade highs. In the past, this ratio tends to diverge from the market well in advance of a major trend reversal, such as the ‘07 top and ‘09 bottom. No such divergences are present... see page 4
• Emerging markets continue to lead. An overseas confirmation of the risk-on trade: the EM/EAFE ratio is emerging from a multi-year base... see page 4
• Actionable Groups. Attractive entry points are visible in many cyclical Groups, especially Casinos and Investment Banks. In today's report we highlight actionable charts in both Groups... see pages 8-24]
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BGC Partners is a holding company. Through its subsidiaries, the company is a brokerage and financial technology company servicing the financial markets. Through its financial service brands, including BGC, GFI, Sunrise Brokers, Besso, Poten and Partners and R.P. Martin, among others, the company focuses on the brokerage of a range of products, including fixed income (rates and credit), foreign exchange, equities, energy and commodities, insurance, and futures. The company also provides a range of services, including trade execution, broker-dealer services, clearing, trade compression, post trade, information, and other back-office services to a range of financial and non-financial institutions.
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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