Vermilion ETF Pathfinder: Actionable ETF research & Ideas
BIG PICTURE... see page 2-3• Bullish big picture. Long-term trends still tell a bullish narrative. While we are seeing signs of short-term decay, most recently in financial stocks, the weight of the evidence, bolstered by foreign markets, points upward.
• Equities > Treasuries & Commodities. Relative to Treasuries (TLT) and commodities (DBC), equities are rallying toward decade highs. We do not see signs of these trends reversing soon. Stay overweight equities.
• SMid > Large Caps (barely). The small/large-cap ratio (IWM/SPY), stuck in a YTD decline, is testing a key support level. We still favor small caps, but further weakness will prompt a change (i.e. overweight large caps).
• Growth > Value. Growth continues to eat value's lunch. Tech and energy are the primary culprits, albeit for two different reasons; the former is extending its relative strength trend to decade highs, the latter, to multi-year lows. Venn diagrams need not apply.
SECTORS... see page 4-7
• Overweights: Financials (XLF), Industrials (XLI), and Tech (XLK). Note: the XLF's daily chart reveals a potential, 6-month top pattern. $23 is the line in the sand -- something we are watching closely.
• Underweights: Defense... Consumer Staples (XLP), Energy (XLE), REITs (XLRE), and Utilities (XLU).
INDUSTRIES... see pages 8-10
• Cyber Security (HACK): Cyber security represents one of the few themes in tech that is not extended. Unlike semis (SOXX), this theme, represented by HACK, is just beginning to break out from a multi-month base. Buy.
• Medical Devices (IHI): Medical device stocks are leading the health care recovery. Buy.
• Metals Miners (XME): XME is beginning to bullishly inflect at its 200-day MA following a deep, YTD correction. Aluminum stocks like CENX are leading the turnaround. Buy.
INTERNATIONAL... see pages 11-13
• Overweight developed int'l. Led by Europe, developed markets are overtaking the U.S. as leadership. Adjust weightings accordingly. EM remains a step behind.
• Europe = Leadership. It's nearly impossible to find a bearish country-specific ETF in this region--even Greece (GREK) is attractive.
• Chinese H-Shares (MCHI): Hong Kong-listed shares are breaking out. Buy.
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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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