Vermilion Compass: Weekly U.S. Equity Strategy
Opportunities amid market pullback• Long-term bullish outlook remains intact. In our last Compass, we discussed the recent pressure on equities as correcting the excess. We also mentioned to watch for a short-term bottom, suggesting potential support for the S&P 500 near 2,630 or the 200-day moving average (2,535 at the time). This past Friday we got a nice intraday turnaround as the S&P 500 bounced off the 200-day moving average to close near the highs of the day. We think that marked an important short-term bottom. Now that some smoke has cleared, we continue to view the 200-day moving average as a critical support level, currently 2,540.
• Consumer Discretionary Sector tops our relative strength rankings (RSR). The Sector now tops the list of both equal-weighted and cap-weighted rankings (based on relative strength). The Sector is on review for an upgrade, though we are reluctant to do so until we get more clarity as to whether the market has established a sustainable bottom... see page 2. In today's report we highlight attractive and actionable groups within Consumer Discretionary, including Footwear, Casinos & Gaming, Retailers (Men's Apparel, Teenagers), and Weight Control Programs... see pages 10-22
• Downgrading Energy. A quick jump toward the bottom of our RSR rankings has led us to downgrade Energy from overweight to market weight... see pages 2-3
• Cyclicals continue to outperform. Cyclicals are leadership, confirmed by a variety of metrics including: (1) the Consumer Discretionary/Staples ratio (XLY/XLP), which is advancing to new highs; (2) our RSR rankings; and (3) our latest list of Groups trading at 3-month relative strength highs, of which Consumer Discretionary and Tech account for 43% of the results.
• Internals remain steady. Advance-decline lines are retreating in a healthy and orderly manner to uptrending support, and as alluded to above, the Consumer Discretionary/Staples ratio moved to a new high... see page 5
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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