Vermilion Int'l Compass: Global Equity Strategy
Hopes of a mild pullback and minor damage were squashed last Thursday as the vast majority of indexes broke below major bases and long-term uptrend support levels. Despite these breakdowns, global equities reached extreme oversold levels on Friday with the majority of them finding support at the lows from August/October 2019. This combination leads us to believe that an important bottom has been established and we are constructive as long as the MSCI ACWI (ACWI-US) holds above $70 support. We believe the market is likely to remain choppy in a broad horizontal range, and that this chop/consolidation is likely to go on for months as it tries to repair itself. We also want to acknowledge the potential for a test of the Friday lows, and a decisive break below $70 in the ACWI would signal further downside ahead... see chart below.• Assessing The Damage. The MSCI EM index is holding at its 200-day MA for now. MSCI ACWI, ACWI ex-US, and EAFE have all broken below base support and/or their respective 200-day MAs. Europe (STOXX Europe 600 & 50, CAC 40, DAX) and Japan (TOPIX, TOPIX Small) are in the same boat. We assess the damage and highlight key support levels to watch. We are constructive on these markets as long as support levels hold, however breakdowns would signal additional downside is likely... see pages 2-4.
• Major Averages Reach Extreme Oversold Conditions. Adding to our belief that equities have made an important bottom is the fact that all the indexes mentioned above reached extreme oversold conditions based on traditional overbought/oversold metrics such as RSI and the % of index constituents above their 50-day MA. Such extreme oversold conditions are consistent with major historical bottoms, however we reiterate that it is possible for prices to test the Friday lows or potentially undercut the lows... see page 5.
• Company Spotlight: America Movil SAB de CV Class L (AMXL-MX). The Communications Sector is gradually improving in terms of relative strength. One actionable idea is AMXL-MX, which exhibits price and RS bottoms... see page 6.
• Actionable Themes: Health Care and Utilities. Health Care remains a major focus of ours -- as it has been for some time. There continues to be a significant number of attractive and actionable opportunities across various industries and geographies. Additionally, we highlight actionable Utility stocks in Europe, Canada, and Brazil
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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