Vermilion Compass: Weekly Equity Strategy
ime For A RestWe believe a pause, or a pullback is increasingly likely when some areas of the market become extended. For instance, the QQQ's achieved the second highest extension above its 200-day moving average in the last 20-years. The previous period occurred in September of 2020 when the Fed was in the midst of a record amount of stimulus during the Covid Pandemic. We remain constructive on the S&P 500, and we expect to see support at its 50-day MA moving forward (currently 4443). Short term supports we are watching include 4460-4475 on the S&P 500, $369.00 on the Nasdaq 100 (QQQ), and $189-190 on the Russell 2000 (IWM); as long as these levels hold, this pullback is likely to be contained... see page 3. Longer-term support on the S&P 500 is at 4300-4325 and 4200. Under the surface we are seeing rotation from growth to value Sectors (more on that below).
• Health Care Is Experiencing A RS Reversal. An observation of XLV (Healthcare Sector ETF) indicates that the once former laggard is finding a footing and indicates a relative strength reversal. (This is part of a larger shift from growth to value Sectors, something we started discussing in our 7/25/23 U.S. Macro Vision when we upgraded Energy to market weight and highlighted the 7-month downtrend reversal in the Russell 1000 Value vs. Growth ratio. The main growth area seeing outflows/underperformance is Technology. We expect to see value continue to outperform, and we still see timely buy opportunities within Industrials, Energy, Financials, and Materials... see charts below and page 2.
• Risk-On Signals. Despite Fitch's U.S. credit downgrade, high yield spreads remain near 1+ year narrows, and RS for Utilities (XLU) is hitting 1+ year lows. This suggests an ongoing risk on environment... see page 4.
• What Could Go Wrong? In terms of what could lead to a meaningful pullback in equities, we are watching 4.1%-4.3% resistance on the 10-year Treasury yield and the 8-month downtrend on the U.S. dollar (DXY); breakouts would likely be problematic for the equity market. We will continue to monitor yields and the DXY closely. In today's report we highlight attractive Groups and stocks within Healthcare, Energy, and Services: HC-33 Nursing Homes & Assisted Living, Refining, SV-01 Data Processing & Outsourcing Svcs., Large-Cap, and SV-14 Construction & Engineering, Small- Cap... see pages 6-26.
Brookdale Senior Living is a holding company. Through its subsidiaries, the company is an operator of senior living communities. The company's Community offerings include: independent living, which is for middle to upper income seniors; assisted living and memory care, which provides housing and assistance to mid-acuity frail and elderly residents; and continuing care retirement, which provides living arrangements and services to accommodate various physical ability and health. Through its Health Care Services segment the company provides home health, hospice and outpatient therapy services, and education and wellness programs, to residents of its communities and to seniors living outside of its communities.
Madison Pacific Properties is engaged in owning, developing and operating industrial and commercial real estate properties located in British Columbia. As of Dec 31 2010, Co.'s property portfolio was comprised of interests in 1,152,358 sq. ft. of net rentable area of industrial properties, 190,383 sq.ft. of net rentable area of retail/highway commercial properties, and 59,080 sq.ft. of net rentable area of office property for a combined total of 1,401,821 sq. ft.
PBF Energy is a holding company. Through its subsidiaries, the company is engaged as an independent petroleum refiner and supplier of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants and other petroleum products in the U.S. The company operates in two business segments: refining, which the company produces a variety of products at each of its refineries such as gasoline, ultra-low-sulfur diesel, heating oil, jet fuel, lubricants, petrochemicals and asphalt; and logistics, which through its PBF Logistics LP subsidiary, the company owns or leases, operates, develops and acquires crude oil and refined petroleum products terminals, pipelines, storage facilities and similar logistics assets.
Valero Energy is an international manufacturer and marketer of transportation fuels and petrochemical products. The company's segments include: Refining, which includes its refining operations, the associated marketing activities, and logistics assets that support its refining operations; Ethanol, which includes its ethanol operations, the associated marketing activities, and logistics assets that support its ethanol operations; and Renewable Diesel, which includes the operations of its joint ventture, Diamond Green Diesel Holdings LLC, which owns and operates a renewable diesel plant in Norco, LA.
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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