Vermilion Compass: Weekly Equity Strategy
Index and Sector Breakdowns Remain AbsentWeak market dynamics continue to be counterbalanced by the fact that there is an absence of breakdowns at the index and Sector level; even the weakest Sectors such as Energy (XLE, XOP, RYE) and Transportation (IYT, XTN, JETS) are holding above key supports. Until we start to see breakdowns at the Sector and index level, we remain constructive overall.
Breakdowns Remain Absent. There continues to be an absence of breakdowns at the index and Sector level, which supports our constructive outlook. The S&P 500 remains above its 50-day MA, the Russell 2000 (IWM) remains above $208, and Russell Micro Caps (IWC) remains above $136; as long as these critical support levels hold, we cannot be bearish on the broad market. Additionally, in order for the indexes to break down, at least some Sectors would have to be breaking down as well -- but that is not what we are seeing. Even the weakest Sectors such as Energy and Transportation are not breaking down. For Energy, we are watching $72 on XOP. For Transportation, we are watching $245 on IYT and $21.15 on JETS... see charts below and pages 2-3.
S&P 500. The S&P 500 remains bullish and the 50-day MA remains major support at 4358; as long as the 50-day MA holds, we expect to see rallies to 4535 followed by 4670. Should the 50-day MA (4358) fail to hold we would expect more sideways to downward price action, as it would likely kickstart a 5-15% pullback. Should the 50-day MA break, our next support levels to watch would be 4296, 4257, 4233, and 4164... see page 3.
Market Dynamics Suggest Caution Is Warranted. Our list of concerns is growing, with the notable additions over the past week being WTI crude oil breaking below the major 2.5-3 year support level at $66, copper's 16-month uptrend violation, and the US dollar (DXY) strengthening... see page 4. Other concerns persist, including widening high yield spreads, EM equities (EEM) breaking down below $52, small-caps underperforming, 10-year Treasury yield below 1.45%, and defensive Sectors beginning to outperform.
Cognizant Technology Solutions is a services company, transforming customers' business, operating and technology models for the digital era. The company's services include digital services and solutions, consulting, application development, systems integration, application testing, application maintenance, infrastructure services and business process services. Additionally, the company develops, licenses, implements and supports proprietary and third-party software products and platforms. The company has organized its services and solutions into four practice areas: Digital Business, Digital Operations, Digital Systems and Technology and Consulting.
Comcast is a media and technology company. The company's segments are: Cable Communications, which provides internet, video, voice, and security and automation services in the United States individually and as bundled services at a discounted rate over its cable distribution system to residential and business customers; NBCUniversal, which includes a portfolio of national cable networks that provide a variety of entertainment, news and information, and sports content, regional sports and news networks, international cable networks, and cable television studio production operations; and Sky, which owns a portfolio of pay television channels that provide entertainment, news, sports and movies.
Gartner is a research and advisory company. The company's principal products and services are delivered through its three business segments: Research, which provides insights and advice across various functional areas of the enterprise through research, briefings, proprietary tools, access to the company's research personnel, peer networking services and membership programs; Conferences, which provides business personnel across an organization the opportunity to learn, share and network; and Consulting, which helps chief information officers and other senior executives driving technology-related strategic initiatives move from insight to action.
Republic Services is a provider of non-hazardous solid waste collection, transfer, disposal, recycling, and environmental services in the United States. The company operates through collection operations, transfer stations, active landfills, recycling processing centers, treatment, recovery and disposal facilities, salt water disposal wells, and deep injection wells. In addition, the company is engaged in landfill gas-to-energy and renewable energy projects and had post-closure responsibility for closed landfills. The company's operations primarily consist of providing collection, transfer and disposal of non-hazardous solid waste, recovering and recycling of certain materials, and environmental services.
Rollins is an international service company providing pest and termite control services through its wholly-owned subsidiaries to both residential and commercial customers in the United States, Canada, Australia, Europe, and Asia. The company's subsidiary, Orkin, LLC provides pest control services and protection against termite damage, rodents and insects to homes and businesses. The company's other subsidiaries include Orkin Canada, a pest control provider in Canada; Western Pest Services, a commercial pest control service company; and The Industrial Fumigant Company, a provider of pest management and sanitation services and products.
Waste Connections is a solid waste services company in North America, providing waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and Canada. Through its R360 Environmental Solutions subsidiary, Co. is also a provider of non-hazardous exploration and production (E&P), waste treatment, recovery and disposal services in several of the natural resource producing areas in the U.S. Co. also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.
Waste Management is a holding company. Through its subsidiaries, the company is a provider of waste management environmental services. The company partners with its residential, commercial, industrial and municipal customers and the communities it serves to manage and reduce waste at each stage from collection to disposal, while recovering resources and creating renewable energy. The company's Solid Waste business is operated and managed by its subsidiaries that focus on various geographic areas and provide collection, transfer, disposal, and recycling and resource recovery services. Through its subsidiaries, the company is also a developer, operator and owner of landfill gas-to-energy facilities.
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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