Vermilion Int'l Compass: Global Equity Strategy
Cautiously Optimistic Following Downtrend ReversalsThe bear market rally that we were on watch for started shortly after we sent out last week's Int'l Compass (May 26), confirmed by the bullish reversals on the DAX, Hang Seng, MSCI China (MCHI-US), and China Internet (KWEB-US). Time will tell as to whether it is just another bear market rally, or if indexes are able to make a higher low and start a new bull market. Either way, it is a start. In today's report we highlight attractive ideas from a bottoms-up perspective, spanning several Sectors.
Many Downtrend Reversals. Indexes reversing topside their downtrends include: S&P 500, Nasdaq 100, Russell 2000, Hong Kong's Hang Seng, Germany's DAX, China (MCHI-US, KWEB-US), Japan's TOPIX Small, and all the MSCI global indexes (ACWI, ACWI ex-US, EM, and EAFE). This signals a bear market rally in progress. This is an obvious improvement, however we need to see these indexes break above longer-term downtrends and major resistance levels to have confidence that a reliable bottom is in.
Indexes Testing Downtrends. Japan's TOPIX/Nikkei 225 and Europe's EURO STOXX 50 are all testing downtrend resistance. Bullish reversals would be very healthy and would tell us there is a high probability that the lows for this bear market are in.
Japan Continues to Lead. Since late March we started adding exposure to large-cap Japanese Technology and Consumer Discretionary, and we have continued to see improvement ever since. Now that the TOPIX Small index shows a bullish reversal, we see a path for continued outperformance from Japan. Over half of today's stock recommendations hail from Japan... see page 3.
Bottoms-Up Stock Recommendations. With global equities bouncing, we are seeing a growing number of attractive stocks, extending beyond the commodity and defensive Sectors that we have focused on all year. For example, the STOXX Europe 600 Autos & Parts Sector is breaking above the key 1100 level with improving RS, a positive sign for the global equity market. Sectors covered include Services, Consumer Discretionary, Technology, Financials, Industrials, Materials, Energy, and Consumer Staples... see pages 4-15.
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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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