Vermilion ETF Pathfinder: Actionable ETF research & Ideas
BIG PICTURE... see page 2• Bullish Big Picture. As we mentioned in our March 6 ETF Pathfinder, four days after the S&P 500's historical high, technicals appeared extended, though the broader picture remains bullish. Since then, this extended status has been relieved via a market-wide pullback, and the path of least resistance continues to point higher. The supporting cast of bullish evidence includes: (1) good breadth--negative divergences in advance-decline lines are non-existent; (2) cyclical sectors continue to outperform, with energy beginning to inflect higher; (3) intact long-term trends; and (4) confirming, bullish technicals in overseas markets. Take advantage of pullbacks.
• Small & Mid > Large Caps. Small and mid caps have lagged this year, but we view this as a mere pullback in the small/large and mid/large ratios.
• Value > growth. Like small caps, value has been shunned so far this year. We view this as mere reversion to the mean forces, not a trend reversal. Add exposure to value (recognizing plenty of opportunities are still available in growth).
U.S. SECTORS... see pages 3-5
• Overweights: Cyclical sectors, especially Tech (XLK), a long-term leader, Financials (XLF), Industrials (XLI), and Materials (XLB).
• Energy: Buy. Breaking out above the 200-day MA, Energy (XLE) is generating a buy signal. WTI is confirming with a rebound off 11-month trendline support (see inset chart).
• Underweights: Stay underweight defensive sectors. One exception: Health Care (XLV), where a market weight is justified due to improving breadth and patterns, especially in biotechs.
U.S. INDUSTRIES... see pages 6-9
• Buy recommendations: Metals & Mining (XME), E&Ps (XOP), Coal (KOL), and Aero/Defense (ITA).
INTERNATIONAL EQUITIES... see pages 10-11
• EM vs Developed: For U.S. ETF investors, who are affected by exchange rates, we favor emerging (VWO) over developed markets (EFA), as many EM currencies like the Brazilian real (BZF) continue to strengthen relative to the dollar, providing a technical tailwind.
• Brazil: Buy. Brazil (EWZ), a leading market last year, has retraced to a zone of strong support, presenting an attractive entry point. Another technical selling point: the Brazilian real (BZF) is one of few currencies advancing to 12-month highs.
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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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