Report
Dave Nicoski ...
  • Ross LaDuke
EUR 221.88 Purchase single report

Vermilion Compass: Weekly Equity Strategy

Caution warranted; Downgrading Materials

We continue to believe that caution is warranted and we are concerned that key support levels we have been monitoring may not hold -- notably 2,800 and the 200-day MA on the S&P 500 and 4,125 and the 200-day MA on the equal-weighted S&P 500. Below we highlight several negative developments which increase the likelihood of a breakdown below these key S&P 500 support levels.

• Cyclicals are deteriorating. We are downgrading Materials (XLB, RTM) to underweight -- reduce exposure and raise cash where possible. The Sector is succumbing to price and RS deterioration, much like fellow late-cyclical Sector Energy (RYE) which we downgraded to underweight last week. Additionally, cap-weighted Industrials (XLI) and equal-weight Discretionary (RCD) are showing signs of breaking below their all important 200-day MAs... see charts below and pages 2-3.

• Crude oil prices breaking down. As highlighted in our 5/23/19 Insights report, WTI crude oil is breaking below its 200-day MA. While this is certainly negative for the Energy Sector, it also has negative implications on global risk assets considering heightened correlations between the stock market and crude prices... see page 4.

• High yield spreads widening, 10's to 2's Treasury spread narrowing. Both of these indicators are moving in the wrong direction as it relates to the health of the economy, signaling an increasing concern that the economic picture may be poised to deteriorate... see page 4.

• The search for silver linings. On the positive side, the Shanghai Composite remains above its 200-day MA and 2,840-2,850 short-term support. The EEM vs. ACWI ratio is testing an important support level going back to the major bottom in January 2016 (China growth scare). RS for cap-weighted Technology (XLK) remains above a key support level we are watching. FAANG stocks as a whole are hanging in there... see page 5.

In today's report we highlight attractive Groups and stocks within Consumer Discretionary, Communications, Services, and Transportation: CD-59 Manufactured Housing, CO-19 Cellular Towers, SV-04 IT Consulting, Gov./Global, Large-Cap, and TR-11 Railroads, Small-Cap... see pages 11-20.
Underlyings
Accenture PLC

American Tower Corp

American Tower is a holding company. Through its subsidiaries, the company is a real estate investment trusts and an independent owner, operator and developer of multitenant communications real estate. The company's primary business is the leasing of space on communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. The company also provides tower-related services, including site acquisition, zoning and permitting and structural analysis, which primarily support its site leasing business, including the addition of new tenants and equipment on its sites.

Cavco Industries Inc.

Cavco Industries designs and produces factory-built homes mainly distributed via a network of independent and the company-owned retailers, planned community operators and residential developers. The company's manufactured homes, marketed under a range of brand names including Cavco Homes, Fleetwood Homes, Palm Harbor Homes, Fairmont Homes, Friendship Homes, Chariot Eagle and Lexington Homes. The company is also a builder of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes. Each home contains a living room, dining area, kitchen, bedroom and bathroom and is equipped with central heating and hot water systems, kitchen appliances, floor coverings and window treatments.

CGI
CGI

CGI Group is engaged in managing information technology services, including outsourcing, systems integration and consulting, software licenses and maintenance, as well as business process services to help clients realize their strategies and create added value.

Crown Castle International Corp.

Crown Castle International is a holding company. Through its subsidiaries, the company owns, operates and leases shared communications infrastructure that is geographically dispersed throughout the U.S., including towers and other structures, such as rooftops (collectively, towers), and fiber primarily supporting small cell networks (small cells) and fiber solutions. The company's towers, fiber and small cells assets are collectively referred to herein as communications infrastructure. The company's core business is providing access, including space or capacity, to its shared communications infrastructure via long-term contracts in various forms, including lease, license, sublease and service agreements.

Equinix Inc.

Equinix provides a choice of data center interconnection solutions and platform services primarily comprised of colocation, interconnection solutions and platform services. The company operates International Business Exchange? (IBX?) data centers across the Americas; Europe, Middle East and Africa and Asia-Pacific regions where customers directly interconnect with a network ecosystem of partners and customers. The company's IBX data centers include several layers of physical security, cabinet space availability, on-site trained staff, areas for customer care and equipment staging, redundant alternating current/direct current power systems and other redundant and fault-tolerant infrastructure systems.

Facebook Class A

Facebook is focused on building and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces. The company's products include: Facebook, which enables people to connect, share, discover, and communicate with each other on mobile devices and personal computers; Instagram, which is a community for sharing photos, videos, and messages; Messenger and WhatsApp, which are messaging applications; and Oculus, which is a hardware, software, and developer ecosystem that allows people to come together and connect with each other through its Oculus virtual reality products. The company also sells advertising placements to marketers.

Gartner

Gartner is a research and advisory company. The company's principal products and services are delivered through its three business segments: Research, which provides insights and advice across various functional areas of the enterprise through research and other reports, briefings, proprietary tools, access to the company's analysts and advisors, peer networking services and membership programs; Conferences, which provides business personnel across the organization the opportunity to learn, share and network; and Consulting, which provides customized solutions to client needs through on-site, day-to-day support, as well as proprietary tools for measuring and improving information technology performance.

Genesee & Wyoming Inc. Cl A

Genesee & Wyoming owns and operates freight railroads worldwide. The company has three segments: North American Operations, which includes regions that serve U.S. states and Canadian provinces and includes short line and regional freight railroads; Australian Operations, which serves New South Wales, the Northern Territory and South Australia and operates the Tarcoola-to-Darwin rail line; and U.K./European Operations, which is led by Freightliner Group Limited, a rail maritime intermodal operator and rail freight provider, as well as regional rail services in Continental Europe.

Infosys Limited ADS

Invesco S&P 500 Equal Weight Consumer Discretionary ETF

Invesco S&P 500 Equal Weight Energy ETF

Invesco S&P 500 Equal Weight Materials ETF

iShares MSCI Emerging Markets ETF

Kansas City Southern

Kansas City Southern is a holding company with domestic and international rail operations in North America. The company is engaged in the freight rail transportation business operating through a single coordinated rail network under one reportable business segment. The company's coordinated rail network comprises approximately 6,700 route miles extending from the midwest and southeast portions of the U.S. south into Mexico and connects with all other Class I railroads, providing shippers with an alternative to other railroad routes and giving direct access to Mexico and the southeast and southwest U.S. through alternate interchange hubs.

Legacy Housing Corp

Legacy Housing builds manufactures and provides for the transport of mobile homes, provides wholesale financing to dealers and mobile home parks and provides retail financing to consumers. The company manufactures its mobile homes at plants located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia. The company relies on a network of dealers to market and sell its mobile homes. The company also sells homes directly to dealers and mobile home parks. The company operates three manufacturing facilities located in Fort Worth, Texas, Commerce, Texas and Eatonton, Georgia.

Materials Select Sector SPDR Fund

SBA Communications

SBA Communications, through its subsidiaries, owns and operates wireless communications infrastructure, including tower structures, rooftops, and structures that support antennas used for wireless communications. The company's services include: network pre-design; site audits; identification of potential locations for towers and equipment on existing infrastructure; support in leasing of the location; obtaining zoning approvals and permits; tower and related site construction; antenna installation; and radio equipment installation, commissioning, and maintenance. The company provides site development services at its towers and at towers owned by others on a local basis, through market and regional offices.

Select Sector SPDR-Industrial

Select Sector SPDR-Technology

Skyline Champion Corporation

Skyline Champion designs, produces and markets manufactured housing, modular housing and park models to independent dealers and manufactured housing communities located throughout the U.S. and Canada. The company's housing products are marketed under a number of trademarks and are available in a variety of dimensions. Each home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom options may include but are not limited to: exterior dormers and windows; interior or exterior accent columns; fireplaces and whirlpool tubs. The company also sells homes that are Energy-Star compliant.

WIPRO LTD

Provider
Vermilion Research
Vermilion Research

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.

Analysts
Dave Nicoski

Ross LaDuke

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