Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Oil & Natural Gas Corp / Technical Analysis

<ul>
<li>MSCI EM (EEM-US) continues to show signs of bottoming as it has held above our $37-$37.50 line-in-the-sand. </li>
<li>Major 1+ year resistance on the EEM-US is at $42, and a breakout would mean the bottom is in (and would be a buy signal).</li>
<li>Favor EM over EAFE due to 2.5-year downtrend reversal in the EAFE vs. EM ratio. Top Overweights: Taiwan, India, Greece; Attractive EM Sectors: Energy, Technology, Consumer Discretionary, Financials</li>
</ul>


MSCI EM (EEM-US) continues to show signs of bottoming as it has held above our $37-$37.50 line-in-the-sand. 
Major 1+ year resistance on the EEM-US is at $42, and a breakout would mean the bottom is in (and would be a buy signal).
Favor EM over EAFE due to 2.5-year downtrend reversal in the EAFE vs. EM ratio. Top Overweights: Taiwan, India, Greece; Attractive EM Sectors: Energy, Technology, Consumer Discretionary, Financials


MSCI Emerging Market Index Testing 1+ Year Resistance; Favor EM over EAFE; Top EM Buys Highlighted

EURO STOXX 50 Price EUR / Technical Analysis

<ul>
<li>As discussed in our previous Int'l Compass (June 29, 2023), we are bullish on global equities (MSCI ACWI) as long as ACWI-US is above $93, targeting $110</li>
<li>Bullish developments have continued: DXY breaking below $101-$101.50, RS bottoming for small-caps, MSCI ACWI ex-U.S. (ACWX-US) 1+ year breakout above $50, Italy's FTSE MIB breaking above multi-year resistance at 28,100.</li>
<li>This is only further evidence supporting our bullish outlook. We are getting the breakout above 4400-4415 on the EURO STOXX 50 that we've been expecting. Buys in Energy, Materials, Financials</li>
</ul>


As discussed in our previous Int'l Compass (June 29, 2023), we are bullish on global equities (MSCI ACWI) as long as ACWI-US is above $93, targeting $110
Bullish developments have continued: DXY breaking below $101-$101.50, RS bottoming for small-caps, MSCI ACWI ex-U.S. (ACWX-US) 1+ year breakout above $50, Italy's FTSE MIB breaking above multi-year resistance at 28,100.
This is only further evidence supporting our bullish outlook. We are getting the breakout above 4400-4415 on the EURO STOXX 50 that we've been expecting. Buys in Energy, Materials, Financials


Bullish Developments Continue; MSCI ACWI Ex-US 1-Yr Breakout; Buys in Energy, Materials, Financials

Market dynamics remain healthy which suggests a new broad-based bull market is not far off. With that said, we are still waiting for confirmation in the form of breakouts or bullish price inflections on the broad global indexes (ACWI-US, ACWX-US, EFA-US, and EEM-US) in order to turn bullish.<ul type="disc">
<li>
Actionable Theme: Major Autos/Auto Parts. Global automobile stocks display bullish price and RS inflections with many breaking out to new highs -- add exposure... see pages 3 and 5-6.</li>
<li>
Actionable Theme: Financials. There continues to be a plethora of attractive Financial stocks globally, ranging from banks and insurance to financial services -- add exposure... see pages 4 and 6-14.</li>
</ul>

Market dynamics remain healthy which suggests a new broad-based bull market is not far off. With that said, we are still waiting for confirmation in the form of breakouts or bullish price inflections on the broad global indexes (ACWI-US, ACWX-US, EFA-US, and EEM-US) in order to turn bullish.

Actionable Theme: Major Autos/Auto Parts. Global automobile stocks display bullish price and RS inflections with many breaking out to new highs -- add exposure... see pages 3 and 5-6.

Actionable Theme: Financials. There continues to be a plethora of attractive Financial stocks globally, ranging from banks and insurance to financial services -- add exposure... see pages 4 and 6-14.


Buying Global Financials & Autos/Auto Parts

Taiwan Semiconductor (TSMC) / Technical Analysis

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Emerging market equities have been one of the worst areas to invest in 2021, but we see early signs of positive change. With the US dollar failing to break above resistance at $93.50 and the MSCI EM ETF (EEM-US) displaying a false breakdown at $52, we believe now is an opportune time to add exposure to emerging market equities. To be clear, we are not getting overly bullish on EM; we have favored developed int’l (EAFE) over EM since May, and we are now shifting back to a neutral stance between the two. We see reason to believe the tide is shifting in EM’s favor. Below we highlight attractive and actionable themes within EM.

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Powszechna Kasa Oszczednosci B / Equity Bottom-Up

LTM results at PKO may not look pretty given the hugely distorting effects of CHF mortgage provisioning. With 6.7 billion zlotys already set aside for potential settlements with Swiss franc mortgage holders, the lender's top managers recently said the bank currently has no plans to create additional loan loss provisions on its Swiss franc mortgage portfolio and would like to return to dividend payments as soon as possible, subject to the decision of Poland's Financial Supervision Authority. Including the aforementioned provisions in OPEX, as our data supplier does, generates very poor Efficiency ratios. Stripping these out of OPEX shows a bank making gradual improvements on the Efficiency front. This means that rather than scoring “0” on Efficiency, the bank should perhaps score a “1.1” in our binary PH Score™ model. If we were to do this, PKO would score 3.3 rather than 2.2. Either way, this is a subpar outcome given the deterioration, not helped by the provisions, in Profitability as well erosion in Common Equity/Assets (though not all Capitalisation ratios), in NIM/Spread, and in Asset Quality. Provisioning was better though while Liquidity improved on account of reining back credit provision. Stripping out CHF provisions, PT Profit was some 8% lower YoY which is reasonable given the C-19 backdrop though underlying Profitability revealed a downward trajectory given Asset growth (accumulation of debt instruments).PKO specialises in consumer credit (61% of Loans), mainly mortgages, though the bank has a (receding) corporate credit book (39%), backed by transactional account funding (84% of Deposits). Under Zbigniew Jagielło's respected tenure, <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">PKO made a string of acquisitions and more than doubled its asset size, but the CEO's surprise resignation has raised questions about whether Poland's largest bank will face growing political interference. PKO has been a state-controlled financial institution since its inception. But Poland's ruling party PiS has, since coming to power in 2015, <span title="" data-toggle="tooltip" data-offset="10%" data-trigger="manual" data-html="true" data-container="body" data-template='&lt;div class="tooltip" role="tooltip"&gt;&lt;div class="news-article-tooltip-arrow tooltip-arrow"&gt;&lt;/div&gt;&lt;div class="tooltip-inner"&gt;&lt;/div&gt;&lt;/div&gt;' data-original-title="">intensified efforts to increase state control of the financial sector. The "redomestication" of banks promises greater national autonomy though in reality the participation of government has also led to concerns by investors that banks might be used to finance unprofitable entities or sectors. Jagiełło's leadership of PKO over the last 12 years has been seen by the market as a sign of stability, and helped reposition it as a modern, digital financial institution and strengthen its leading position in the banking sector. During his tenure, the bank's assets increased from less than €40 billion in 2009 to more than €80 billion in 2020. It strengthened its position in various markets via M&amp;A, including the purchase of Nordea’s Polish banking and insurance units, the Polish leasing operation at Raiffeisen, and the Polish asset management at KBC while branches were opened in Germany, the Czech Republic, and Slovakia<div class="content-highlight">A FV of 19% and a PBV of 1.2x are not attractive given the respective thresholds of 10% and 1.0x. The bank commands subpar fundamental momentum despite the headline CIR and lack of Profitability being more optical than real within a low PH Score™. Management autonomy generates uncertainty and is a risk moving forward.</div>

LTM results at PKO may not look pretty given the hugely distorting effects of CHF mortgage provisioning. With 6.7 billion zlotys already set aside for potential settlements with Swiss franc mortgage holders, the lender's top managers recently said the bank currently has no plans to create additional loan loss provisions on its Swiss franc mortgage portfolio and would like to return to dividend payments as soon as possible, subject to the decision of Poland's Financial Supervision Authority. Including the aforementioned provisions in OPEX, as our data supplier does, generates very poor Efficiency ratios. Stripping these out of OPEX shows a bank making gradual improvements on the Efficiency front. This means that rather than scoring “0” on Efficiency, the bank should perhaps score a “1.1” in our binary PH Score™ model. If we were to do this, PKO would score 3.3 rather than 2.2. Either way, this is a subpar outcome given the deterioration, not helped by the provisions, in Profitability as well erosion in Common Equity/Assets (though not all Capitalisation ratios), in NIM/Spread, and in Asset Quality. Provisioning was better though while Liquidity improved on account of reining back credit provision. Stripping out CHF provisions, PT Profit was some 8% lower YoY which is reasonable given the C-19 backdrop though underlying Profitability revealed a downward trajectory given Asset growth (accumulation of debt instruments).PKO specialises in consumer credit (61% of Loans), mainly mortgages, though the bank has a (receding) corporate credit book (39%), backed by transactional account funding (84% of Deposits). Under Zbigniew Jagielło's respected tenure, PKO made a string of acquisitions and more than doubled its asset size, but the CEO's surprise resignation has raised questions about whether Poland's largest bank will face growing political interference. PKO has been a state-controlled financial institution since its inception. But Poland's ruling party PiS has, since coming to power in 2015, intensified efforts to increase state control of the financial sector. The "redomestication" of banks promises greater national autonomy though in reality the participation of government has also led to concerns by investors that banks might be used to finance unprofitable entities or sectors. Jagiełło's leadership of PKO over the last 12 years has been seen by the market as a sign of stability, and helped reposition it as a modern, digital financial institution and strengthen its leading position in the banking sector. During his tenure, the bank's assets increased from less than €40 billion in 2009 to more than €80 billion in 2020. It strengthened its position in various markets via M&amp;A, including the purchase of Nordea’s Polish banking and insurance units, the Polish leasing operation at Raiffeisen, and the Polish asset management at KBC while branches were opened in Germany, the Czech Republic, and SlovakiaA FV of 19% and a PBV of 1.2x are not attractive given the respective thresholds of 10% and 1.0x. The bank commands subpar fundamental momentum despite the headline CIR and lack of Profitability being more optical than real within a low PH Score™. Management autonomy generates uncertainty and is a risk moving forward.

PKO: Not as Bad as It Looks but Still Unappealing

Poland

Powszechna Kasa Oszczednosci Bank Polski S.A. attracts deposits and offers commercial banking services. The Bank offers all types of banking services present on the Polish banking market, money market and capital market for institutional and individual clients.

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Powszechna Kasa Oszczednosci B (PKO PW)

MSCI Emerging Market Index Testing 1+ Year Resistance; Favor EM over EAFE; Top EM Buys Highlighted

MSCI EM Index $EEM Testing 1+ Year Resistance; Favor EM over EAFE $EFA. Top EM Country Overweights: Taiwan, India, Greece; Attractive EM Sectors:...

Vermilion Research

Bullish Developments Continue; MSCI ACWI Ex-US 1-Yr Breakout; Buys in Energy, Materials, Financials

We remain bullish on global equities as long as $ACWI remains above $93, targeting $110; Bullish developments continue: $DXY below $101.50, small...

Vermilion Research

Buying Global Financials & Autos/Auto Parts

Global automobile stocks display bullish price and RS inflections with many breaking out to new highs. Financials are attractive globally, ranging...

Vermilion Research

Shifting Exposure To Emerging Markets; Buying TSMC/Taiwan Semi, ICICI Bank, Many Others

We see early signs of positive change within EM, and we present a strong case as to why we believe now is an opportune time to add exposure.

Vermilion Research

PKO: Not as Bad as It Looks but Still Unappealing

PKO faces diverse headwinds in the form of subpar fundamental trends, risk to management autonomy, and stretched valuations relative to peers.

Paul Hollingworth

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