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

<p>While a more cautious outlook is appropriate, as long as $77 holds (the September lows) we are constructive and would be buyers on a pullback. A move below $77 would start to get very concerning, and would leave $75 and the 200-day MA as last-ditch support. Considering the recent pullback we want to be sticking with areas that have continued to outperform in spite of recent broad market weakness. For that we look to the following leadership Sectors: <strong>Technology, Consumer Discretionary, Manufacturing, Materials, and Transportation</strong></p>

While a more cautious outlook is appropriate, as long as $77 holds (the September lows) we are constructive and would be buyers on a pullback. A move below $77 would start to get very concerning, and would leave $75 and the 200-day MA as last-ditch support. Considering the recent pullback we want to be sticking with areas that have continued to outperform in spite of recent broad market weakness. For that we look to the following leadership Sectors: Technology, Consumer Discretionary, Manufacturing, Materials, and Transportation

<p>Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.</p>

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This bullish price action combined with market dynamics which remain mostly healthy lead us to believe the lows of this recent correction are in. Consumer Discretionary and Manufacturing Sectors continue to be two attractive Sectors that are outperforming globally; we highlight numerous actionable names in today's report.

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p>We asked Keyence about the impact of COVID-19 on their business. They were not terribly helpful.</p><ul>
<li>Management expects market conditions to revert to pre-COVID normal as the economy recovers. They see no material change in their business mix, growth drivers or competition. </li>
<li>Their business in China began to recover in the three months to June. Sales in all other regions were down, although activity has picked up recently with the easing of travel restrictions.</li>
<li>As usual, they provided no guidance. </li>
</ul><p>The share price is sticking near the all-time high reached a month ago. Valuations suggest profit taking is in order. So do economic factors. It took three years for operating profit to recover from the Lehman Shock.</p>

We asked Keyence about the impact of COVID-19 on their business. They were not terribly helpful.
Management expects market conditions to revert to pre-COVID normal as the economy recovers. They see no material change in their business mix, growth drivers or competition. 
Their business in China began to recover in the three months to June. Sales in all other regions were down, although activity has picked up recently with the easing of travel restrictions.
As usual, they provided no guidance. 
The share price is sticking near the all-time high reached a month ago. Valuations suggest profit taking is in order. So do economic factors. It took three years for operating profit to recover from the Lehman Shock.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/490/original/2020-07-29_05-46-56.png?1595972235" class="editor-image img-responsive" data-smartkarma-image-id="148490"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/491/original/2020-07-29_05-47-39.png?1595972270" class="editor-image img-responsive" data-smartkarma-image-id="148491"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>OUTLIERS</strong> - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's case - the SPE business of <a href="https://www.smartkarma.com/entities/tokyo-electron-ltd" target="_blank" data-smartkarma-citation="entities:280:1" rel="noopener">Tokyo Electron (8035 JP)</a> and the FA business of <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>.  The latter's forecast, if achieved, would take their incremental operating profit margin to -2,631. While the market has over-reacted to TEL's stability, many, including this writer, have been overly complacent about the pace Fanuc's recovery. The SPE and FAA business cycles are no longer synchronised, and Fanuc's valuations have yet to adjust to that new reality.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/493/original/2020-07-29_06-48-44.png?1595972935" class="editor-image img-responsive" data-smartkarma-image-id="148493"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/494/original/2020-07-29_06-49-07.png?1595972973" class="editor-image img-responsive" data-smartkarma-image-id="148494"></figure><div class="content-caption">Source • Japan Analytics</div><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p style="text-align: center;"><strong>55 Quarterly Results</strong></p></div><div><ul>
<li>
<strong>Results Score:</strong> 14 Positive / 1 Neutral / 40 Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.4</li>
<li>
<strong>Average % Change in Revenue:</strong> -11.8% Quarter YoY / -2.4% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -1.0ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 31%</li>
</ul></div><hr><div><p style="text-align: center;"><br><strong>23 Annual • 17 Interim Forecasts/Revisions</strong></p></div><div><ul>
<li>
<strong>Annual Forecast/Revision Score</strong>: 7 Positive / 0 Neutral / 16 Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 4 Positive / 0 Neutral / 13 Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -9.8</li>
</ul></div>

Source • Japan AnalyticsOUTLIERS - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's case - the SPE business of Tokyo Electron (8035 JP) and the FA business of Fanuc (6954 JP).  The latter's forecast, if achieved, would take their incremental operating profit margin to -2,631. While the market has over-reacted to TEL's stability, many, including this writer, have been overly complacent about the pace Fanuc's recovery. The SPE and FAA business cycles are no longer synchronised, and Fanuc's valuations have yet to adjust to that new reality.Source • Japan AnalyticsDAILY STATS55 Quarterly Results

Results Score: 14 Positive / 1 Neutral / 40 Negative

Average Results Score Change: -3.4

Average % Change in Revenue: -11.8% Quarter YoY / -2.4% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.0ppt

Percentage Making Quarterly Losses: 31%
 23 Annual • 17 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 7 Positive / 0 Neutral / 16 Negative

Interim Forecast/Revision Score Change: 4 Positive / 0 Neutral / 13 Negative

Average Forecast/Revision Score Change: -9.8


🇯🇵 JAPAN • Results & Revisions 28th July - TEL, Fanuc, Canon, Nissan, Shin-Etsu, Omron

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/661/original/2020-04-26_07-20-46.png?1587853286" class="editor-image img-responsive" data-smartkarma-image-id="129661"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>THE WEDGE</strong> - Both Japanese equities and the $/¥ exchange rate have traded in a narrow range over the last two weeks. Undeterred, the Bank of Japan intervened through ETF purchases three times last week. In total, since the low of March 16th, the central bank has bought ETFs equivalent to 3.5% of market value, and have supported a 15% 29-day rally. As the markets consolidate in anticipation of the impending 'rendezvous with reality' in the form of quarterly earnings, the resolution of the 'wedge' formations above will be to the downside.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/662/original/2020-04-26_07-39-05.png?1587854366" class="editor-image img-responsive" data-smartkarma-image-id="129662"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>CANARIES</strong> - As we noted in Friday's <a href="https://www.smartkarma.com/insights/japan-revisions-results-23rd-april-getting-worse-rapidly-obics-tgas-canon-omron" target="_blank" data-smartkarma-citation="insights:38697" rel="noopener">Results Review</a>, interim forecasts are a useful 'canary' and, with some help from <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, our composite Score is heading lower rapidly. A growing number of companies lacking Fanuc's candour are refusing to make initial full-year or interim forecasts this year leaving the market, and the sell-side, to 'fly blind'. The lack of foresight is resulting in a degree of misplaced optimism, as amply demonstrated by Friday's 7.5% gain in <a href="https://www.smartkarma.com/entities/omron-corp" target="_blank" data-smartkarma-citation="entities:15904:1" rel="noopener">Omron (6645 JP)</a> for 'beating' a six-month-old forecast for a mostly pre-COVID-19 year.     </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/665/original/File%202020-04-26%205%2006%2033.jpeg?1587856452" class="editor-image img-responsive" data-smartkarma-image-id="129665"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/666/original/File%202020-04-26%205%2007%2018.jpeg?1587856466" class="editor-image img-responsive" data-smartkarma-image-id="129666"></figure><p><strong>PERSISTENCE</strong> - Japan is still 'behind' the world and ahead of the rest of Asia in COVID-19 metrics - Marco Piani's excellent global timeline chart is attached as an Appendix in the DETAIL below. The number of confirmed new cases is persistent at around 300, of which, alarmingly, an increasing number are outside Tokyo, while the rolling 3-day number of deaths is moving more towards Europe than the rest of Asia. The northern island of Hokkaido which saw some of the earliest case clusters in Japan is experiencing a second wave of infections.  Nishimura, the Cabinet minister in charge of the response to COVID-19, is now in quarantine at home after one of his aides tested positive. Sunday has brought some welcome good news - the nationwide daily case count has declined to 140. <strong>Nevertheless, with just ten days until the proposed end of the states of emergency, at least one extension is likely, possibly until the end of May. Such a declaration is not yet discounted in the equity market.</strong></p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/667/original/IMG_1515.jpg?1587857128" class="editor-image img-responsive" data-smartkarma-image-id="129667"></figure><div class="content-caption">Source • NHK</div><p><strong>PREVALENCE</strong> - Although a lack of widespread testing biases this data, the detected rates of infection by age cohort (descending in the chart above) and sex (male blue/female red) reveal the consequences of Japan's version of social distancing. The highest rates of infection are amongst those that have to commute or come into contact with others, men between the ages of 20 and 50 and childless women in their twenties, many of whom work in hospitals or check-out counters. 10% of all COVID-19 cases in Japan are medical staff or patients who were infected nosocomially.  Testing is still a major bottleneck due to excessive fax-centric bureaucracy and reliance on only non-private institutions. Only 6,000 tests are being carried out every day, two-thirds of total capacity, and the results take one week to obtain. </p><p><strong>PLEASE DIE AT HOME</strong> - A number of those infected with COVID-19 who have been told to 'stay home' as the hospitals are full are now dying in situ or on the street. Some local governments are being forced to change tack. All newly-confirmed patients that cannot be accommodated in hospitals are to be moved to hotels with medical staff in attendance. However, there is now a severe shortage of such personnel. Hospitals in Tokyo are still turning away suspected COVID-19 patients. Aichi prefecture has resorted to offering 'subsidies' of up to ¥4 million to hospitals for accepting new patients.</p><p><strong>ANTI-SOCIAL BEHAVIOUR</strong> - Japan is not immune to anti-social behaviour at the worst of times. Cars with license plates from other prefectures have been vandalised when parked or tailgated or verbally-abused on the road. Child care facilities are turning away children of hospital staff for fear they may already be asymptomatic carriers, prompting many medical workers to quit their jobs. Some companies are requiring employees who are working from home to be monitored by video during working hours to ensure they are at their desks and not helping out with the housework.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/670/original/title_1.jpg?1587859428" class="editor-image img-responsive" data-smartkarma-image-id="129670"></figure><div class="content-caption">Source • Sharp</div><p><strong>ABE-'NO-MASKS'</strong><strong>AND THE SHARP LOTTERY</strong> - The government has had to recall the small washable cloth masks that PM Abe planned to distribute two of per household due to mould, stains and insects being found in up to one-third of early batches. The roll-out of these much-criticised 'Abe masks' will be further delayed. Meanwhile, demand for <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp (6753 JP)</a>'s newly-manufactured higher quality single-use masks so overwhelmed the company's website, that Sharp has decided to hold a lottery as a way of rationing demand.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/129/725/original/2020-04-26_15-42-04.png?1587883347" class="editor-image img-responsive" data-smartkarma-image-id="129725"></figure><div class="content-caption">Source ♦ Japan Analytics</div><p>In the<strong> DETAIL</strong> below, we shall review the results, revisions and initial forecast announcements made on Friday by larger-cap companies.  The positive/neutral/negative balance for Friday's 28 results announcements was 13:1:14, and the net change in Results Score was -1. For the 47 revisions/forecasts, the split was 21:2:24 but the net change in Revision Score totalled -170. Of the eighteen companies declaring full-year results, only half made interim or annual forecasts for the current year. As we shall see below the 'worst' forecasts were from <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/amano-corp" target="_blank" data-smartkarma-citation="entities:8135:1" rel="noopener">Amano (6436 JP)</a>, <a href="https://www.smartkarma.com/entities/ana-holdings-inc" target="_blank" data-smartkarma-citation="entities:5308:1" rel="noopener">ANA (9202 JP)</a>, and <a href="https://www.smartkarma.com/entities/denso-corp" target="_blank" data-smartkarma-citation="entities:18703:1" rel="noopener">Denso (6902 JP)</a> (see chart above). Large=caps with improved Revisions Scores were <a href="https://www.smartkarma.com/entities/mochida-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:3655:1" rel="noopener">Mochida Pharmaceutical (4534 JP)</a>, <a href="https://www.smartkarma.com/entities/okinawa-cellular-telephone" target="_blank" data-smartkarma-citation="entities:6517:1" rel="noopener">Okinawa Cellular Telephone (9436 JP)</a> and <a href="https://www.smartkarma.com/entities/acom-co-ltd" target="_blank" data-smartkarma-citation="entities:8897:1" rel="noopener">Acom (8572 JP)</a>. <a href="https://www.smartkarma.com/entities/shionogi-co-ltd" target="_blank" data-smartkarma-citation="entities:19535:1" rel="noopener">Shionogi (4507 JP)</a> and two other companies raised dividends; none cut their payouts.</p>

Source • Japan AnalyticsTHE WEDGE - Both Japanese equities and the $/¥ exchange rate have traded in a narrow range over the last two weeks. Undeterred, the Bank of Japan intervened through ETF purchases three times last week. In total, since the low of March 16th, the central bank has bought ETFs equivalent to 3.5% of market value, and have supported a 15% 29-day rally. As the markets consolidate in anticipation of the impending 'rendezvous with reality' in the form of quarterly earnings, the resolution of the 'wedge' formations above will be to the downside.Source • Japan AnalyticsCANARIES - As we noted in Friday's Results Review, interim forecasts are a useful 'canary' and, with some help from Fanuc (6954 JP), our composite Score is heading lower rapidly. A growing number of companies lacking Fanuc's candour are refusing to make initial full-year or interim forecasts this year leaving the market, and the sell-side, to 'fly blind'. The lack of foresight is resulting in a degree of misplaced optimism, as amply demonstrated by Friday's 7.5% gain in Omron (6645 JP) for 'beating' a six-month-old forecast for a mostly pre-COVID-19 year.     PERSISTENCE - Japan is still 'behind' the world and ahead of the rest of Asia in COVID-19 metrics - Marco Piani's excellent global timeline chart is attached as an Appendix in the DETAIL below. The number of confirmed new cases is persistent at around 300, of which, alarmingly, an increasing number are outside Tokyo, while the rolling 3-day number of deaths is moving more towards Europe than the rest of Asia. The northern island of Hokkaido which saw some of the earliest case clusters in Japan is experiencing a second wave of infections.  Nishimura, the Cabinet minister in charge of the response to COVID-19, is now in quarantine at home after one of his aides tested positive. Sunday has brought some welcome good news - the nationwide daily case count has declined to 140. Nevertheless, with just ten days until the proposed end of the states of emergency, at least one extension is likely, possibly until the end of May. Such a declaration is not yet discounted in the equity market.Source • NHKPREVALENCE - Although a lack of widespread testing biases this data, the detected rates of infection by age cohort (descending in the chart above) and sex (male blue/female red) reveal the consequences of Japan's version of social distancing. The highest rates of infection are amongst those that have to commute or come into contact with others, men between the ages of 20 and 50 and childless women in their twenties, many of whom work in hospitals or check-out counters. 10% of all COVID-19 cases in Japan are medical staff or patients who were infected nosocomially.  Testing is still a major bottleneck due to excessive fax-centric bureaucracy and reliance on only non-private institutions. Only 6,000 tests are being carried out every day, two-thirds of total capacity, and the results take one week to obtain. PLEASE DIE AT HOME - A number of those infected with COVID-19 who have been told to 'stay home' as the hospitals are full are now dying in situ or on the street. Some local governments are being forced to change tack. All newly-confirmed patients that cannot be accommodated in hospitals are to be moved to hotels with medical staff in attendance. However, there is now a severe shortage of such personnel. Hospitals in Tokyo are still turning away suspected COVID-19 patients. Aichi prefecture has resorted to offering 'subsidies' of up to ¥4 million to hospitals for accepting new patients.ANTI-SOCIAL BEHAVIOUR - Japan is not immune to anti-social behaviour at the worst of times. Cars with license plates from other prefectures have been vandalised when parked or tailgated or verbally-abused on the road. Child care facilities are turning away children of hospital staff for fear they may already be asymptomatic carriers, prompting many medical workers to quit their jobs. Some companies are requiring employees who are working from home to be monitored by video during working hours to ensure they are at their desks and not helping out with the housework.Source • SharpABE-'NO-MASKS'AND THE SHARP LOTTERY - The government has had to recall the small washable cloth masks that PM Abe planned to distribute two of per household due to mould, stains and insects being found in up to one-third of early batches. The roll-out of these much-criticised 'Abe masks' will be further delayed. Meanwhile, demand for Sharp (6753 JP)'s newly-manufactured higher quality single-use masks so overwhelmed the company's website, that Sharp has decided to hold a lottery as a way of rationing demand.Source ♦ Japan AnalyticsIn the DETAIL below, we shall review the results, revisions and initial forecast announcements made on Friday by larger-cap companies.  The positive/neutral/negative balance for Friday's 28 results announcements was 13:1:14, and the net change in Results Score was -1. For the 47 revisions/forecasts, the split was 21:2:24 but the net change in Revision Score totalled -170. Of the eighteen companies declaring full-year results, only half made interim or annual forecasts for the current year. As we shall see below the 'worst' forecasts were from Fanuc (6954 JP), Amano (6436 JP), ANA (9202 JP), and Denso (6902 JP) (see chart above). Large=caps with improved Revisions Scores were Mochida Pharmaceutical (4534 JP), Okinawa Cellular Telephone (9436 JP) and Acom (8572 JP). Shionogi (4507 JP) and two other companies raised dividends; none cut their payouts.

🇯🇵 JAPAN MARKET (& COVID-19) UPDATE 26th April - Thin End of the Wedge

Japan

OMRON Corporation manufactures electronic components, equipment and systems used for factory automation. The Company provides products and services in a variety of fields including industrial automation, electronic components, automotive electronics, social systems such as ticket gate machines and traffic control, and healthcare.

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Omron Corp (6645 JP)

Cautiously Optimistic on Global Equities

We are constructive on global equities and would be buyers on a pullback. A move below $77 would start to get very concerning, and would leave $75...

Vermilion Research

Global Equity Strategy:

Key $70 support on the MSCI ACWI (ACWI-US) held strong last week, and ACWI-US is now inflecting topside its bullish falling wedge pattern. This...

Vermilion Research

Keyence (6861 JP): Back to the Future?

xxx xxx Keyence expects market conditions to revert to normal as the economy recovers.But that wouldn’t put a time frame on that and, since it’s...

Scott Foster

🇯🇵 JAPAN • Results & Revisions 28th July - TEL, Fanuc, Canon, Nissan, Shin-Etsu, Omron

OUTLIERS - This quarter's results are highlighting the wide variances in performance between companies in the same thematic basket - in yesterday's...

Campbell Gunn

🇯🇵 JAPAN MARKET (& COVID-19) UPDATE 26th April - Thin End of the Wedge

THE WEDGE - Both Japanese equities and the $/¥ exchange rate have traded in a narrow range over the last two weeks. Undeterred, the Bank of Japan...

Campbell Gunn

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