Sunday, August 19, 2012

Sector & Group Rotation Notes - 8/19/12


The Sector Trends blog continues to develop a new blog format and plans to resume regular publication sometime in the future. In the interim listed below are notes from the author's weekly analysis.

The Sector Trends blog does not make forecasts and does not cheerlead in its commentary. The perspective offered is on current trends in the market, which sectors and groups are rotating, and which stocks from these groups are likely to perform best in a neutral/positive environment. Readers need to provide their own assessment of market health, employ their own risk management strategies, and trade accordingly. In a declining market nearly all equities will suffer, including those found listed here. 

All data and most charts are from MarketSmith, and are published here with their permission. Clicking once on a chart enlarges it for enhanced readability.

Follow up/review:
Sector Trend's last analysis two weeks ago highlighted the 9 stocks listed in the table below:

Symbol
Name
Industry Name
EPS Rating
RS Rating
Current Price
Gain
PRLB
Proto Labs Inc
Electronic-Parts
76
80
35.39
-6.60%
FEIC
F E I Co
Elec-Scientific/Msrng
89
95
55.89
6.50%
IPGP
I P G Photonics Corp
Elec-Scientific/Msrng
90
92
62.43
9.07%
CRZO
Carrizo Oil & Gas Inc
Oil&Gas-U S Expl&Prod
77
33
26.02
5.47%
FTK
Flotek Industries Inc
Oil&Gas-Machinery/Equip
82
93
12.12
21.69%
KOG
Kodiak Oil & Gas Corp
Oil&Gas-U S Expl&Prod
82
86
9.3
13.97%
BCOR
Blucora Inc
Internet-Content
82
95
15.65
2.09%
IACI
I A C/Interactivecorp
Internet-Content
94
87
52.33
-1.45%
Z
Zillow Inc Cl A
Internet-Content
30
84
37.23
-3.62%












Avg.
5.23%

The Electronic-Parts group had a solid two week period gaining 2.4%, and has gained 7.7% over the trailing 5 weeks to rank #39 on the 5 week price performance list
  • PRLB -6.6% pull back came in low volume, and it never hit its 39.08 pivot. The pivot point remains valid.
  • FEIC is now 8% past its pivot and out of the buy range.
  • IPGP is now 9% past its pivot and out of the buy range.

Energy groups paused last week, but on the 5 week price performance list 7 groups are in the top 50 and none are in the bottom 50.
  • CRZO missed earnings August 7, 26c vs. consensus 37c. CRZO initially fell 5% but rallied to finish the day at the top of its daily range and down only -1.4%. CRZO looks attractive at these levels and appears ready to move higher out of its current 5 week consolidation.
  • FTK crushed earnings (as should have been anticipated given the CEO's comments highlighted in the blog post) and has gained over 21%. FTK is climbing the right side of a cup pattern and still looks attractive.
  • KOG has gained almost 14% and is also climbing the right side of a cup, it continues to look attractive.

The Internet-Content group has paused over the last two weeks gaining only 1%, however on the 5 week price performance list it has a 6.3% gain to rank #55. The MarketSmith industry group rank is #51.
  • BCOR has drifted slightly higher. The pattern still looks like a flag on the weekly, but appears to be consolidating on the daily. 16.02 might serve as a pivot for a very short term swing trade. Remember this is a thin stock, average daily volume ~ 250K.
  • IACI looks like it's working on a handle to go with its cup pattern. Volume appears to be drying up a little, pivot ~ 54.20 with volume.
  • Zillow announced earnings that met expectations but also announced a potential secondary offer, although on CNBC the CEO stated that no decision has been made on issuing additional shares (really?). Z has a 44.00 pivot out of a cup & handle pattern but the weekly chart indicates churning price action.

Overview:
The table below shows price performance for key markets and sectors over the trailing 26 weeks, and is sorted high to low by 5 week performance. The green and red shading denotes relative performance +/- to the SP 500 for the time period in question.

Over the trailing 5 weeks the Nasdaq leads the broad based equity indices, and its 5.8% return is 29% higher than the 4.5% return of the SP 500. This is a positive as the market tends to have its strongest gains when the Nasdaq's relative strength leads the SP 500. In fact, over the trailing 26 weeks the Nasdaq  has been the most consistent of the major indices, showing positive gains for 19 of the 26 weeks vs. 18 for the SP 500, and 16 each for the DJIA and Russell 2000. The Russell 2000's outperformance over the last 3 weeks vis-a-vis the SP 500 is another positive.

1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Philadelphia Semiconductor Index
-0.2%
3.9%
5.4%
13.5%
11.2%
-6.2%
Pboe Oil Service Index
0.4%
3.7%
2.1%
11.3%
14.7%
-9.5%
Russell 1000 Energy Index
-0.1%
2.4%
2.6%
7.2%
12.4%
-3.3%
Philadelphia Gold/Silver Index
1.0%
6.4%
5.4%
6.5%
8.3%
-17.0%
Nasdaq Composite
1.8%
3.7%
4.0%
5.8%
10.7%
4.2%
SP 500
0.9%
2.0%
2.3%
4.5%
9.5%
4.2%
DJIA
0.5%
1.4%
1.5%
3.9%
7.3%
2.5%
Philadelphia Housing Index
4.5%
7.9%
5.1%
3.4%
22.6%
17.8%
KBW Large Cap Bank Index
1.4%
2.6%
2.5%
2.9%
9.7%
3.6%
Russell 2000
2.3%
4.0%
3.0%
2.4%
9.7%
-1.1%
FXE euro
0.3%
-0.4%
0.2%
0.7%
-3.5%
-6.4%
Dow Jones Transportation Index
2.6%
2.1%
1.3%
0.1%
6.6%
-0.9%
Philadelphia Utility Index
-1.6%
-2.7%
-3.4%
-1.8%
3.7%
5.1%


The table below shows commodity related group's price performance over the trailing 1, 2, 3, 5, 13 and 26 week periods. Notice over the 2, 3 & 5 week periods almost twice as many groups are in the top 50 groups overall as are in the bottom 50. Over the one week period 5 of the 10 groups in the bottom 50 were energy related, but 3 of these groups still showed modest gains for the week. Overall the rebound in these groups appears to be intact.

33 Commodity Oriented  Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
4
9
10
13
11
2
# in the bottom 50 groups (out of 197)
10
3
4
2
8
14

The table below shows defensively oriented  group's price performance over the trailing 1, 2, 3, 5, 13, and 26 week periods. Two weeks ago this blog noted that "The performance of defensively oriented groups is beginning to wane." That trend has continued, and it is most obvious if you look at the change in the 5 week numbers over the past two weeks. Two weeks ago there were 7 defensively oriented groups in the top 50 as measured by trailing 5 week price performance, and 8 in the bottom 50. This week those numbers are 0 and 16.  Over the one week period it looks like the trend may have paused, but in fact most of the groups in the top 50 for the week could have an investment thesis other than a defensive outlook on the part of the purchaser. Additionally, the Philadelphia Utility Index fell -1.6% for the week suggesting continued movement of funds out of defensive names.

30 Defensively Oriented  Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
8
2
3
0
8
13
# in the bottom 50 groups (out of 197)
10
15
15
16
8
4

Technology oriented groups continue to rebound. Two weeks ago the 5 week trend showed only 4 groups in the top 50 and 12 in the bottom 50, this week the 5 week trend shows that ratio is reversed with 14 groups in the top 50 and only 5 in the bottom 50.

28 Technology Oriented  Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
8
13
12
14
6
5
# in the bottom 50 groups (out of 197)
5
4
3
5
8
9


Group Performance:
The Apparel-Clothing Mfg group industry group rank from MarketSmith is #69, but recent price performance suggests this rank will improve. The group ranks #30 on the 5 week price performance list, and #24 and #27 respectively on the 2 and one week lists.
  • On Friday Michael Kors (KORS) broke through a 50.69 pivot out of a 22 week consolidation gaining 5.2% on volume 49% above average. KORS is under heavy accumulation and analysts project EPS to increase 60% in FY '13 and another 26% in FY '14. RS of 97 is hitting a new high. KORS is the fourth largest stock in the industry group as measured by its $10B market cap, yet only 351 institutions held positions as of June. VFC is the market cap leader at $17B/1006 funds, followed by COH $16B/1586 funds, RL $14B/945 funds. These comparisons suggest further increases in institutional sponsorship are likely, providing additional demand to  support/increase share price.
  •  VFC has a 152.97 pivot out of a cup & handle base. Analysts project EPS +18% in FY '12 and +15% in FY '13. Volume has been drying up as price has drifted to the top of the handle.
  • Carters Inc. (CRI) is in the midst of a 16 week consolidation but is under accumulation with a 50 day Up/Down volume ratio of 1.9. FY '12 estimates +27%, FY '13 +25%. The pivot point is 57.27, but consider a position earlier if we get a pocket pivot.

Auto related groups are in MarketSmith's doghouse when measured by industry group rank - the best of the 5 related groups is ranked #137. However, these groups are showing some interesting action on the shorter term price performance lists. On the 5 week price performance list 3 auto related groups rank in the top 21 overall, and on the 3 week list all 5 auto groups rank in the top 36. The two week list shows all 5 groups in the top 51, and the 1 week list shows 3 groups in the top 50.
  • Cooper Tire & Rubber (CBT) is 12% past an 18.01 pivot out of a flat base after announcing earnings August 9 that beat views, 82c vs. consensus 50c. Analyst's project FY '12 earnings +105% and FY '13 EPS +18%, giving CTB a forward PE < 7 when using FY '13 estimates.  CTB hit a high of 27.73 in April 2010, and has seen heavy accumulation since its earnings announcement. Reader's might consider a position on a pull back towards $19. 
  •  Oshkosh Corp. (OSK) has seen heavy accumulation since beating earnings expectations July 26, 75c vs. 53c, and raising guidance. OSK has a 26.34 pivot out of a 28 week cup shaped base.
  • Cummins Inc. (CMI) could be a buy at current levels with stops at ~ 98.50. The 50 day Up/Down volume ratio is an abysmal 0.9, but the 25 day Up/Down volume ratio is 1.9 indicating much heavier recent accumulation. Despite the 37% sell off between March 16 and July 12, institutional sponsorship actual increased from March to June (1631 > 1633) and has increased for the last 8 consecutive quarters.
  • Tenneco (TEN) currently trades at 10x earnings yet analyst's project FY '12 EPS +24% and FY '13 EPS +22%. TEN is seeing accumulation with an Up/Down volume ratio of 1.2 and an Accumulation/Distribution rating of "B+". The second chart below shows TEN moving up out of a volatility squeeze.
  •  For those comfortable with more speculative issues, Westport Innovations (WPRT) looks like a buy if it breaks 40.40 with volume. WPRT is seeing some accumulation with a 50 day Up/Down volume ratio of 1.6.
 
The Consumer Prod-Electronics group ranks #175 in MarketSmith's industry group rankings, but the shorter term price performance lists are hinting at a turn around. On the 5 week list the group ranks #57, 3 week list #8, 2 week list #6, and the one week list #44.
  • Skulcandy Inc. (SKUL) is seeing heavy accumulation, as seen in the chart below. The 50 day Up/Down volume ratio is 1.7, and the Accumulation/Distribution ranking is "A-", RS is 80.  After a visit with SKUL management DA Davidson recently stated it believes that the launch of gaming products by the company has significant potential that's not reflected in the stock, and maintains a $26 target and Buy rating on the shares. From SKUL's annual report: "In April 2011 we acquired the leading premium brand in gaming headphones, Astro Gaming. The acquisition gave us a credible gaming platform that we can leverage to broaden our product offering and open new distribution. During 2012, we plan to introduce a redesigned line of premium gaming headphones under the Astro Gaming brand and a new line of intermediate priced gaming headphones under the Skullcandy brand." SKUL has a 17.76 pivot out of cup shaped base.
  • Harmon (HAR) trades at 16x earnings yet analysts project FY '12 EPS +30% and FY '13 EPS +26%. HAR's 50 day Up/Down volume ratio indicates distribution at 0.8, but the 25 day ratio of 2.0 suggests the stock is actually under accumulation. HAR had a pocket pivot August 10, gaining 7.5% on volume 83% above average as it moved through the 50 day. The second chart below shows HAR moving up out of a volatility squeeze. HAR has a 52.75 pivot out of a cup shaped base, but looks safe to purchase at current levels with a stop at ~ 44.
 
Select retail groups appear to be acting in a healthy manner. Listed below are some interesting stocks from the 9 retail groups ranking in the top 75 on the 5 week price performance list.
  • Francesca's Holdings (FRAN) gained 10.7% on Friday on nearly 3x average volume, FRAN is now 1% past a 33.93 pivot out of a 20 week consolidation. Analysts forecast FY '13 EPS +60% and FY '14 +22%. Relative strength at 97 is hitting a new high.
  •  Select Comfort (SCSS) is recovering from a 47% pullback over the April - July time period, and the MarketSmith pattern recognition shows it 1% past a 29.08 pivot out of a cup & handle pattern. There was no volume confirmation, however, but it could be that SCSS is just climbing the right side of its cup. SCSS is under accumulation with a 50 day Up/Down volume ratio of 1.2, the 25 day ratio is even higher at 1.6; the accumulation/distribution rating is "B". Despite the vicious sell off institutional sponsorship never wavered, with the number of funds increasing from 351 in March to 385 in June; in fact SCSS shows 8 consecutive quarters of increasing fund sponsorship.
  • Beacon Roofing Supply (BECN) is under heavy accumulation with a 50 day Up/Down volume ratio of 2.1, RS 92, EPS 94. The pivot point is 28.00 out of a 6 month consolidation.
  •  Chicos Fas (CHS) broke out of a 6 month consolidation on Friday gaining 4.2% on volume 76% above average. RS 89, EPS 94, FY '13 EPS estimates +24%, FY '14 +17%.


The Sector Trends analysis from two weeks ago wrote "Software groups have been taking a beating - only 1 software related group ranks in the top 50 on the 5 week price performance list, while 6 groups (out of 10 total) rank in the bottom 50. However, software stocks have a statistically significant seasonality and analysis (from Erlanger Chart Room software) suggests we could be at the start of a seasonally strong period for software... This is a sector worth keeping an eye on." There are now 5 software related groups in the top 32 on the 5 week price performance list.
  • Sourcefire Inc. (FIRE) has broken higher out of the descending channel seen in the chart below. FIRE's accumulation/distribution rating is only a "C+", and the 50 day Up/Down volume ratio is only 1.0, however the 25 day ratio is 1.5 indicating FIRE has come under recent accumulation. Institutional sponsorship has increased steadily over the last 8 quarters. Analysts forecast FY '12 EPS +33% and FY '13 EPS +28%. RS 94, EPS 99. FIRE can be purchased at current levels with a stop at ~ 48.
  • Synopsis Inc. (SNPS) has just broken higher out of a 6 month consolidation and is under accumulation. SNPS accumulation/distribution ranking is "A+" and its 50 day Up/Down volume ratio is a powerful 2.2 - especially so given its chart pattern.
  • Mentor Graphics (MENT) is edging higher out of a 22 week consolidation. MENT trades at 13x current earnings and analysts forecast FY '13 EPS +22%, FY '14 +14%. MENT has enjoyed modest but steady increases in institutional sponsorship over the trailing 4 quarters.
  • Symantic (SYMC) has seen heavy accumulation of its shares since beating earnings expectations. Perhaps more relevant to its performance, SYMC replaced its CEO and stated on its earnings conference call that it would be making "shorter-term decisions" and was "completely wide open" regarding what strategic options are on the table. Bloomberg reported that according to Royal Bank of Canada and Lazard Capital Markets SYMC could deliver a 40% gain to investors by splitting its storage and security software businesses, unraveling the $13B Veritas deal through a split which could increase the company's value to $22-$28 a share.
 

2 comments:

  1. Great info. How do you get the marketsmith charts to display data all the way back to last august on the daily chart. I only show back to last december.

    ReplyDelete
  2. Try increasing your screen resolution.

    ReplyDelete