Vermilion Int'l Compass: Global Equity Strategy
Pullback Complete?; WTI Crude Oil Breaking DownWe are starting to see signs that suggest this pullback may have run its course, as several global market indexes and Sectors appear to be making a higher low near logical support. This includes the S&P 500, Russell 2000, MSCI ACWI (local currency), TOPIX/TOPIX Small/Nikkei 225, MSCI ACWI Technology (IXN-US), Consumer Discretionary (RXI-US), Financials (IXG-US), Industrials (EXI-US)... see chart below and on page 2. While our overall outlook remains neutral, we continue to see a plethora of attractive buying opportunities in the new leaders.
Commodity Prices Heading Lower. We continue to watch commodity prices closely, as we believe sustained lower commodity prices are required in order to bring down inflation, which is required to get central banks to loosen policy. And, until that happens, global equities will have a hard time establishing a reliable bottom. Last week, we discussed our belief that commodity prices were likely headed lower, and that has played out so far. Ultimately, we need to see the Bloomberg Commodity index (DJP-US) break below $32.50 in order to confirm a major top, but signs suggest it is coming. In addition to the top in copper, aluminum, and RBOB Gasoline futures, WTI crude oil is now breaking below the critical $85 support level. As long as it stays below $85 we see a major top in place for crude oil... see chart below.
Japan and India. We continue to see both Japan (TOPIX/TOPIX Small/Nikkei 225) and India (SENSEX) as two of the most attractive countries globally -- remain overweight/add exposure. Roughly half of today's individual stock recommendations are from Japan or India.
Actionable Theme: Growth/Cyclicals. We continue to favor a mix of growth and cyclicals at current levels, as signs point to these areas emerging as leadership once this bear market is officially over. Sectors covered include Consumer Discretionary, Technology, Industrials, and Financials/Services -- add exposure... see pages 3-15.
Actionable Theme: Select Utilities. The global Utilities Sector is mixed, but there are some pockets of leadership. Attractive Utility stocks highlighted include Gulf Energy Development (GULF-TH), Northland Power (NPI-CA), and Capital Power Corp. (CPX-CA)... see page 15.
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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