Vermilion Int'l Compass: Global Equity Strategy
Look to commodity sectors for leadershipNew sector leadership, enter stage right. While Tech continues to plot higher, still mocking reversion-to-the-mean forces, sector leadership is broadening into value segments. Two stand out: Energy and Materials. Both exhibit timely technicals, and we expect both to yield relative outperformance in 2018. Overweight.
A supporting cast of observations support this theme:
• By extension, we are also bullish on commodities. Most commodity indices and funds, like DBC (below), are breaking out from multi-year bottoms. Energy and base metals are responsible for the improvements. In energy, Brent and WTI broke out last quarter from three-year bottom patterns. (We turned bullish in Aug.) In base metals, aluminum and copper continue to trend higher, and we do not see signs of this reversing. Ditto for crude.
• The USD is rolling over. The Sept-Nov rebound failed to overtake the declining 200-day MA, and the subsequent (and current) decline shows no signs of reversing. In addition to the EUR/USD breaking out from a multi-year base, commodity currencies like the AUD/USD and CAD/USD exhibit multi-year bottom patterns... see page 2
• Emerging markets continue to outperform. This tends to accompany relative strength in energy and materials. Given the base pattern visible in the EM/ACWI ratio, we expect this trend to persist well into 2018... see page 2
• Related equity charts reveal long-term base patterns. The patterns visible throughout each sector reveal both (1) long-term bases/trend reversals and (2) timely entry points. Examples range from: PBR's breakout above a 10-year downtrend; Encana's (ECA) emergence from a 12-month base; and widespread base breakouts throughout steel and mining stocks, like ArcelorMittal (MT-NL), First Quantum Minerals (FM-CA), and Grupo Mexico (GMEXICOB-MX).
In today's report we highlight actionable names within Energy and Materials... see pages 4-7
Canadian Natural Resources is an independent crude oil and natural gas exploration, development and production company. Co.'s exploration and production operations are focused in North America, largely in Western Canada; the U.K. portion of the North Sea; and CA'te d'Ivoire, Gabon, and South Africa in Offshore Africa. Co. had total proved reserves of 5.71 billion barrels of oil equivalent. Co.'s gross proved crude oil, bitumen (thermal oil), synthetic crude oil and natural gas liquids reserves totaled 4.70 billion barrels and its gross proved natural gas reserves totaled 6,106.00 billion cubic feet.
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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