Vermilion Int'l Compass: Global Equity Strategy
Sticking With Cyclical Value and Defensives; Adding Large-Cap Japan TechnologyWe believe the lows have likely been established for this correction, though we still believe a bottoming process would likely take weeks or potentially months and could come with more tests of the lows. To that end, we expect some give back following this 2+ week rally. We recommend sticking with cyclical value and defensive areas, which we have been focused on for most of 2022.
Japan, Europe, Germany All At Resistance. Japan's TOPIX and Nikkei 225 are each testing their respective downtrends. The EURO STOXX 50 is testing resistance in the 4040-4090 range. Germany's DAX is testing major resistance in the 14,815-14,950 zone. It is likely that this initial 2-3 week bounce has run its course... see pages 2-3.
Broad Global Indexes. The MSCI ACWI ex-US (ACWX-US) remains below $54 and the MSCI EAFE (EFA-US) remains below $75.25-$76. The MSCI ACWI (ACWI-US) is the only one to reclaim an important support at $99, thanks largely to a higher weighting to mega-cap Technology names which have enjoyed a strong bounce; still, it remains below its 200-day MA. All of the aforementioned indexes are just below key resistances, making this a logical place for a pullback. Additionally, MSCI EM (EEM-US) and MSCI China (MCHI-US) have stalled after being unable to rally back to their respective downtrends.
Actionable Theme: More of the Same. Today we used a bottoms-up approach, focusing on actionable stocks that are leading and breaking out of sound bases; these are the type of names that are going to lead the market higher once a new bull market starts. Unexpectedly, it led us to cyclical value (Energy, Financials, Manufacturing, Transportation, and Materials) and defensives (Consumer Staples, Telecomm, Utilities, and Health Care). Stick with these areas... see pages 4-17.
Actionable Theme: Be Selective Within Technology. In our bottoms-up review, we could not help but notice several buyable Tech stocks in Japan and Taiwan. Technology stocks highlighted include: Canon Inc. (7751-JP), NTT DATA Corp (9613-JP), KONAMI HOLDINGS (9766-JP), Trend Micro Incorporated (4704-JP), and Nuvoton Technology Corp (4919-TW)... see chart below and pages 17-18.
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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