Report
Dave Nicoski ...
  • Ross LaDuke
EUR 220.15 Purchase single report

Vermilion Compass: Weekly Equity Strategy

Technical indications mixed; Outlook remains cautious

Key support levels we have been monitoring (the 200-day MAs on the S&P 500 and equal-weighted S&P 500) have failed to hold, something we noted as increasingly likely in last week's Compass. Despite the break below support, the move lower has been orderly but technical indications remain mixed. The weight of the evidence leads us to remain cautious, supported by several observations highlighted below.

• U.S. dollar (USD) weakness coming? We continue to believe a weakening USD may rescue global risk assets by providing a tailwind for EM equities and the commodity structure. The euro is on the cusp of a bullish inflection topside the falling wedge as highlighted in our 5/21/19 Compass, meaning the time may be coming soon where we see the USD break down from its rising wedge pattern... see charts below.

• Defensives remain leadership; Growth vs. Value breakdown. RS for defensives including Staples (XLP), Utilities (XLU) and Real Estate (XLRE, VNQ) are hitting multi-month highs, an indication investors are expecting turbulence ahead... see pages 2-3.

• High yield spreads are surging. High yield spreads continue to widen at an alarming rate and high yield ETFs such as JNK and HYG are breaking down. This will continue to be a major problem for the equity market if current trends persist... see page 4.

• Treasury yields plunging, but 10's to 2's Treasury spread at YTD highs. We highlight a level where the plunging 10-year Treasury yield has the potential to stabilize - something that would be consistent with a bounce in the equity market. Additionally, the 10Y/2Y Treasury spread is hitting YTD highs, which is likely to be a positive for banks (more on banks below) and the economy... see page 4.

• Cyclicals at logical support. Key cyclicals including Banks (KBE, KRE), Transports (IYT), and small-caps (IWM) are certainly not attractive charts. Still, all are near potential support areas, suggesting a near-term reprieve may be forthcoming... see page 5.
In today's report we highlight attractive Groups and stocks within Materials and Financials: MA-26 & MA-27 Large-Cap and Small-Cap Gold, Western Hemisphere, and FN-40 & FN-41 Large-Cap and Small-Cap Property & Casualty Insurance... see pages 11-28.
Underlyings
Agnico Eagle Mines

Agnico-Eagle Mines is a gold mining company with mining operations in Canada, Mexico and Finland. Co. earns a proportion of its revenues from the production and sale of gold in both dore bar and concentrate form. The remainder of revenue and cash flow is generated by the production and sale of byproduct metals. The revenue from byproduct metals is mainly generated by production at the LaRonde mine in Canada (silver, zinc, copper and lead) and the Pinos Altos mine in Mexico (silver).

Alamos Gold Inc.

Alamos Gold is engaged in the exploration, mine development, and the mining and extraction of precious metals, primarily gold. Co.'s s primary asset is the Mulatos Mine and holds the mineral rights to the Salamandra group of concessions in the State of Sonora, Mexico, which includes several known satellite gold occurrences.

Alleghany Corp.

Alleghany is an insurance holding company. Through its Transatlantic Holdings, Inc. subsidiary, the company is engaged in the property and casualty reinsurance business. Through its other subsidiary Alleghany Insurance Holdings LLC, the company is engaged in the property and casualty insurance business. The company sources, executes, manages and monitors certain private capital investments through its subsidiary, Alleghany Capital Corporation (Alleghany Capital). Alleghany Capital's investments include: Stranded Oil Resources Corporation; Bourn & Koch, Inc.; R.C. Tway Company, LLC; IPS-Integrated Project Services, LLC; Jazwares, LLC; WWSC Holdings, LLC; and Wilbert Funeral Services, Inc.

Allstate Corp.

Allstate is a holding company. Through its subsidiaries, the company is engaged in the property and casualty insurance business in the U.S. and Canada. The company's segments include: Allstate Protection, which provides private passenger auto, homeowners, other personal lines and commercial insurance; Service Businesses, which includes SquareTrade that provides consumer protection plans and related technical support; Allstate Life, which provides interest-sensitive and variable life insurance products, as well as distributes non-proprietary retirement products; and Allstate Benefits, which provides voluntary benefits products, including life, accident, critical illness, and other health insurance products.

Axis Capital Holdings Ltd.

B2Gold

B2Gold is a Vancouver-based gold producer with three operating mines (two in Nicaragua and one in the Philippines), a fourth mine which has entered into the commissioning and testing phase in Namibia and a portfolio of development and exploration assets in Mali, Colombia, Burkina Faso and Nicaragua. Co.'s reportable operating segments include its mining operations and development projects. The Other Mineral Properties segment consists of Co.'s interests in mineral properties which are at various stages of exploration. The Corporate and Other segment includes corporate operations and the Bellavista property in Costa Rica which is classified as held for sale.

Barrick Gold Corp.

Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development. Co. also produces copper and hold interests in oil and gas properties located in Canada. Co.'s mining operations are concentrated in three regional business units: North America, South America and Australia Pacific. Co. also hold a 73.9% equity interest in African Barrick Gold plc that owns gold mines and exploration properties in Africa. Co.'s copper business unit contains producing copper mines located in Chile and Zambia; and a mine under construction located in Saudi Arabia.

Chubb Ltd

Compania de Minas Buenaventura S.A. (ADS)

Eldorado Gold Corp.

Eldorado Gold is engaged in the exploration, development, mining and production of gold and other mining resources in Brazil, China, Turkey and Greece.

Erie Indemnity Co. Cl A

Erie Indemnity is engaged as a managing attorney-in-fact for the subscribers (policyholders) at the Erie Insurance Exchange (Exchange). The Exchange is a reciprocal insurer that writes property and casualty insurance. The company's primary function is to perform policy issuance and renewal services on behalf of the subscribers at the Exchange. The company's primary function as attorney-in-fact is to perform certain services on behalf of the subscribers at the Exchange relating to policy issuance and renewals including the sales, underwriting, and issuance of policies. The sales related services the company provides include agent compensation and certain sales and advertising support services.

First American Financial

First American Financial is a holding company. Through its subsidiaries, the company is engaged in the business of providing financial services through its two segments. The title insurance and services segment provides title insurance, closing and/or escrow services and similar or related services domestically and internationally in connection with residential and commercial real estate transactions. It maintains, manages and provides access to title plant records and images and, in addition, provides banking, trust, document custodial and wealth management services. The specialty insurance segment issues property and casualty insurance policies and sells home warranty products.

FNF Group

Fidelity National Financial is a title insurance holding company. The company has the following segments: title, which provides core title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. This segment also includes the company's transaction services business, which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default. The company's corporate and other segment consists of the operations of various real estate brokerage businesses, and Commissions, Inc. and other real estate technology subsidiaries.

Franco-Nevada

Franco-Nevada is a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil and gas and other resource assets located in the U.S., Canada, Mexico, Peru, Chile and Africa. Co.'s portfolio includes 340 mineral and oil and gas assets covering properties at various stages from production to early stage exploration.

Hanover Insurance Gp

The Hanover Insurance Group is a holding company. Through its subsidiaries, the company provides property and casualty insurance products and services. The company has four segments: Commercial Lines, which includes commercial multiple peril, commercial automobile, workers' compensation, and other commercial coverages; Personal Lines, which includes personal automobile, homeowners, and other personal coverages; Chaucer Holdings Limited, which includes marine, aviation and political, casualty, energy, and property; and Other, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations.

Hilltop Holdings

Hilltop Holdings is a financial holding company. The company provides business and consumer banking services from offices located throughout Texas through its subsidiary, PlainsCapital Bank. The company has three business units: PlainsCapital Corporation, which provides banking and wealth, investment and treasury management services, as well as residential mortgage loans; Hilltop Securities Holdings LLC, which provides investment banking and other related financial services; and National Lloyds Corporation, which provides fire and homeowners insurance to low value dwellings and manufactured homes.

Kirkland Lake Gold

Kirkland Lake Gold is a Canadian gold mining and exploration company with three producing mines in Australia: the Fosterville Gold Mine and the Stawell Gold Mine in the State of Victoria and the Cosmo Gold Mine in the Northern Territory. Co. also has a portfolio of development opportunities on its significant land package, including the Big Hill Project at Stawell and various projects in the Northern Territories. In addition, Co. owns title to a mining lease located in north-central Newfoundland, Canada.

Markel Corp.

Markel is a financial holding company. The company's business is comprised of the following types of operations: Underwriting, which is comprised of the company's risk-bearing insurance operations; Investment, which is primarily related to the company's underwriting operations; Program Services, which serves as a fronting platform that provides other insurance companies access to the U.S. property and casualty insurance market; Markel CATCo Investment Management, which an investment fund manager that provides insurance-linked securities to investors; and Markel Ventures, Inc., which includes the company's controlling interests in a portfolio of businesses that operate outside of the specialty insurance marketplace.

Mercury General Corp.

Mercury General is an insurance holding company. Through its subsidiaries, the company writes personal automobile insurance in 11 states, mainly California. The company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The company provides the following types of automobile coverage: collision, property damage, bodily injury, comprehensive, personal injury protection, underinsured and uninsured motorist, and other hazards. The company also provides the following types of homeowners coverage: dwelling, liability, personal property, fire, and other hazards. The company sells its policies through independent agents, its insurance agencies, and internet sales portals.

Newmont Goldcorp

Newmont Goldcorp is a gold producer with operations and/or assets in the U.S., Australia, Peru, Ghana and Suriname. The company also produces copper, principally through operations in Boddington in Australia and Phoenix in the U.S. The company's regions include North America, South America, Australia, and Africa. The company's North America segment consists primarily of Carlin, Phoenix, Twin Creeks, Long Canyon and Cripple Creek &Victor in the U.S. The company's South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. The company's Australia segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. The company's Africa segment consists primarily of Ahafo and Akyem in Ghana.

NovaGold Resources Inc.

NovaGold Resources is a mineral exploration company engaged in the exploration and development of gold and copper mineral properties. Co.'s primary focus is on the Donlin Gold project in Alaska. The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly owned subsidiaries of Co. and Barrick Gold Corporation. Co. also has an interest in the Galore Creek copper-gold-silver project in British Columbia, Canada. The Galore Creek project is held by a partnership owned equally by NOVAGOLD Canada Inc., a wholly-owned subsidiary of Co., and by Teck Resources Limited.

Progressive Corp.

Progressive is an insurance holding company. The company's insurance subsidiaries and affiliates provide personal and commercial auto insurance, residential property insurance, and other insurance and related services. The company's Personal Lines segment writes insurance for personal autos and recreational and other vehicles. The Commercial Lines segment writes primary liability, physical damage, and other auto-related insurance for automobiles and trucks owned and/or operated by small businesses as a part of the commercial auto market. The company is engaged in property insurance for homes, condos, manufactured homes, and renters, as well as personal umbrella insurance and primary and excess flood insurance.

RLI Corp.

RLI is an insurance holding company. Through its subsidiaries, the company is engaged in underwriting selected property and casualty insurance. The company has three segments: casualty, which includes commerical and personal umbrella, general liability, professional Services, commercial transportation, small commercial, executive products, medical professional liability, and other casualty; property, which includes commercial property, marine, specialty personal and other property coverages; and surety; which includes miscellaneous surety coverage, bonds for small to medium-sized contractors, commercial surety bonds and energy surety coverages.

Royal Gold Inc.

Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metal streams, royalties, and similar interests. The company manages its business under two segments: the acquisition and management of stream interests; and the acquisition and management of royalty interests. The company's principal producing stream and royalty interests on properties outside of the U.S. are located in Canada, Chile, the Dominican Republic, Ghana and Mexico. The company also has stream and royalty interests in mines and projects in other countries, including Argentina, Australia, Bolivia, Brazil, Burkina Faso, Guatemala, Honduras, Macedonia, Nicaragua, Peru, Russia, Spain and Tunisia.

Selective Insurance Group Inc.

Selective Insurance Group is a holding company. Through its subsidiaries, the company operates in four segments: Standard Commercial Lines, which comprises insurance products and services provided in the standard marketplace to commercial enterprises; Standard Personal Lines, which comprises insurance products and services, including flood insurance coverage, provided primarily to individuals acquiring coverage in the standard marketplace; Excess and Surplus Lines, which comprises insurance products and services provided to customers who have not obtained coverage in the standard marketplace; and Investments, which invests the premiums collected by the company's insurance operations.

Travelers Cos Inc.

Travelers Companies is a holding company. Through its subsidiaries, the company is engaged in providing commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals. The company's segments include: Business Insurance, which provides property and casualty insurance and insurance related services; Bond and Specialty Insurance, which provides surety, fidelity, management liability, professional liability, other property and casualty coverages and related risk management services, and certain specialty insurance products; and Personal Insurance, which writes property and casualty insurance covering individuals' personal risks.

W.R. Berkley Corp.

W. R. Berkley is an insurance holding company. The company operates in two segments of the property casualty insurance business: Insurance, which includes commercial insurance business, including excess and surplus lines and admitted lines, throughout the U.S., as well as insurance business in the U.K., Continental Europe, South America, Canada, Mexico, Scandinavia, Asia and Australia; and Reinsurance, which provides reinsurance business on a facultative and treaty basis in the U.S., U.K., Continental Europe, Australia, the Asia-Pacific region and South Africa. The company also invests in equity securities, merger arbitrage securities, investment funds, private equity, loans and real estate related assets.

White Mountains Insurance Group 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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