Sunday, September 30, 2012

Sector & Group Rotation Notes - 9/30/12



Listed below are notes from the author's weekly analysis. This weekend’s analysis is condensed due to other obligations of the author. The Sector Trends blog will probably not publish next Sunday 10/7, but will return Sunday 10/14.

The Sector Trends blog does not make forecasts and does not cheerlead with 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 charts displayed here are the property of MarketSmith, and are published here with their permission. Clicking once on a chart enlarges it for enhanced readability.

Market 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.

Industry Group
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Philadelphia Gold/Silver Index
-2.2%
-0.5%
6.5%
13.4%
21.2%
8.9%
Philadelphia Housing Index
-5.4%
-3.8%
4.7%
8.5%
15.4%
24.2%
KBW Large Cap Bank Index
-1.3%
-4.0%
0.6%
5.1%
8.3%
-0.3%
Russell 2000
-2.1%
-3.2%
-0.1%
3.5%
4.9%
0.9%
FXE euro
-1.1%
-2.1%
0.3%
2.7%
1.4%
-3.8%
Russell 1000 Energy Index
-1.6%
-3.5%
0.6%
2.6%
9.5%
1.7%
IBD 85/85 Index
-1.3%
-1.7%
-1.0%
2.2%
2.6%
-1.8%
DJIA
-1.0%
-1.1%
1.1%
2.1%
4.3%
1.7%
SP 500
-1.3%
-1.7%
0.2%
2.1%
5.8%
2.3%
Nasdaq Composite
-2.0%
-2.1%
-0.6%
1.5%
6.2%
0.8%
Philadelphia Utility Index
1.0%
0.8%
0.4%
-0.2%
-2.3%
2.7%
Pboe Oil Service Index
-4.3%
-7.0%
-2.2%
-1.1%
11.3%
-5.9%
Philadelphia Semiconductor Index
-3.3%
-6.0%
-4.7%
-4.2%
-0.8%
-12.9%
Dow Jones Transportation Index
-0.4%
-6.2%
-3.0%
-4.4%
-6.1%
-6.9%

In last week’s analysis the Sector Trend’s blog noted a slew of warning signs and red flags; this past week the markets responded with two distribution days on the Nasdaq and three on the SP 500. For the week the Russell 2000 fell 2.1%, the Nasdaq 2%, the SP 500 1.3%, and the DJIA 1%.

The Dow Jones Transportation Index declined 0.4% after the previous week’s 5.9% decline, and finished at the bottom of its weekly range. Individual transportation related industry groups have fared no better as 6 of the 7 groups rank in the bottom 50 of price performance for the trailing 3 and 5 week periods. Currently the Dow Jones Transportation Index is riding the bottom of a 21 week horizontal channel; a significant break below the most recent low of 4783.93 would represent a negative development for the market.

The Philadelphia Semiconductor Index fell out of bed this past week gapping down through the bottom of a 7 week channel, losing 3.3% on the week. MarketSmith’s 3 semiconductor related industry groups rank in the bottom 50 on the trailing 1, 3, 5, 13, and 26 week price performance lists. This mirrors the general weakness seen in technology overall, and the combined indication is not suggestive of a healthy market.

Economic data was poor this past week.

On Monday the Chicago Fed National Activity Index fell to minus 0.87 in August from a revised minus 0.12 in July. The three-month average is also sinking more deeply into contraction, from a revised minus 0.26 in July to minus 0.47 in August which is the lowest level since June last year.

The Durable Goods Orders report released on Thursday indicated manufacturing has lost significant momentum with nondefense aircraft leading the way down. New factory orders for durables plunged a whopping 13.2 percent (monthly) in August after a revised 3.3 percent boost in July (originally up 4.2 percent and revised to 4.1 percent in that July factory orders report). Excluding transportation, orders dipped 1.6 percent, following a 1.3 percent decline in July.

The Kansas City Fed Manufacturing Index survey showed weakening, adding to concern from the sharply negative durables orders report for August.

Also on Thursday real GDP growth was unexpectedly revised down for the second quarter. The Commerce Department is now estimating growth at a 1.3 percent annualized pace, compared to the second estimate of 1.7 percent and advance estimate of 1.5 percent. Analysts forecast a 1.7 percent growth rate. The latest number is sharply slower than the 2.0 percent seen in the first quarter and especially the 4.1 percent boost posted for the fourth quarter of last year.

The Chicago PMI report released Friday lurched into negative ground, dropping 3.3 points in September to 49.7 which is the first sub-50 reading of the recovery. New orders had been remaining consistently solid, until this month when they fell a very steep 7.4 points to 47.4, also the lowest level of the recovery.

The red flags listed in last week's analysis, combined with the poor economic data and distribution days of this past week, and the continued defensive rotation seen in the market suggests it is a time for caution on the part of investors.






Larger Group Themes:
The tables below show commodity, technology and defensively related group's price performance over the trailing 1, 2, 3, 5, 13 and 26 week periods.

33 Commodity Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
6
2
5
4
9
3
# in the bottom 50 groups (out of 197)
16
12
6
10
7
13

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
3
4
7
9
6
2
# in the bottom 50 groups (out of 197)
14
13
15
13
12
14

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
19
22
10
8
5
14
# in the bottom 50 groups (out of 197)
3
1
4
7
10
2

As you might guess from the absence of green-shaded cells there’s not much positive to talk about in the larger group trends represented in the in the tables above.

Both commodity and technology oriented groups have begun faltering as defensively oriented groups have surged to the forefront, and unfortunately this is not the type of action indicative of a healthy market.

Sunday, September 23, 2012

Sector & Group Rotation Notes - 9/23/12



Listed below are notes from the author's (vacation shortened) weekly analysis.

The Sector Trends blog does not make forecasts and does not cheerlead with 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 charts displayed here are the property of MarketSmith, and are published here with their permission. Clicking once on a chart enlarges it for enhanced readability.

Market 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.
Industry Group
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Philadelphia Gold/Silver Index
1.7%
8.9%
14.9%
22.0%
24.9%
10.2%
Philadelphia Housing Index
1.7%
10.7%
14.4%
15.6%
34.2%
30.7%
KBW Large Cap Bank Index
-2.7%
1.9%
6.4%
6.3%
11.4%
1.4%
FXE euro
-1.0%
1.4%
3.3%
5.3%
3.3%
-2.3%
Russell 2000
-1.1%
2.1%
5.3%
4.3%
10.4%
3.1%
Russell 1000 Energy Index
-1.9%
2.2%
5.1%
3.4%
16.8%
2.7%
Nasdaq Composite
-0.1%
1.4%
3.7%
3.4%
9.9%
3.7%
SP 500
-0.4%
1.5%
3.8%
3.0%
9.4%
4.5%
IBD 85/85 Index
-0.4%
0.3%
2.9%
2.7%
5.3%
-0.1%
DJIA
-0.1%
2.2%
3.7%
2.3%
7.4%
3.8%
Pboe Oil Service Index
-2.8%
2.2%
4.5%
1.8%
21.5%
-3.0%
Philadelphia Semiconductor Index
-2.8%
-1.5%
-0.3%
-2.5%
4.4%
-9.3%
Philadelphia Utility Index
-0.2%
-0.6%
-0.1%
-2.5%
-1.5%
3.0%
Dow Jones Transportation Index
-5.9%
-2.7%
-1.9%
-5.5%
-3.4%
-5.9%

Although there were no distribution days last week the market is beginning to flash some warning signs.

On Tuesday Fedex announced earnings results that beat analyst estimates but lowered guidance for the 2nd quarter to $1.30-$1.45 from consensus $1.67, and FY ’13 guidance to $6.20-$6.60 from consensus $7.04. Fedex stated exports around the globe had contracted and that their guidance assumed weaker economic growth. Fedex declined 6.4% on the week in 2x average volume.

Last week the markets posted minor declines in increasing volume. While most of this volume was the result of the quadruple witching that occurred Friday, after Fedex’ earnings announcement Tuesday morning the Nasdaq churned Tue – Thu in volume about 9% above average for a -0.0008% loss.

Dow Jones Transportation Index fell 5.9% on the week, its largest weekly decline since last November. For the week the Transportation-Rail industry group declined 6.8%, Transportation-Ship -3.9%, Transport-Air Freight -3.9%, and Transportation-Truck -3.6%. Volume increased in all of these groups and was doing so prior to Friday’s expiration. With the exception of the airlines the remaining 6 transportation related industry groups finished in the bottom 35 on the weekly price performance list.

Since resuming publication 8/5/12 the Sector Trends blog has noted the rotation of funds out of defensively oriented industry groups. That changed this past week as 16 groups finished in the top 50 of the weekly price performance list, with only 3 in the bottom 50. The top performing group for the week was Tobacco which gained 3.6% in volume 24% above average. Last week all 7 food related groups finished in the bottom 40, this week 6 of 7 finished in the top 63. Two Utility groups finished in the top 50 and all 4 utility related groups finished in the top 70.

According to Investors Intelligence the percentage of bullish investment advisors has increased to 54.2% while the percentage of bearish advisors has declined to 24.2%. Investors Intelligence considers the norm to be 45% bulls, 35% bears and 20% neutral, and has found that a majority of advisors and commentators are almost always wrong at market turning points. The current 54.2% bullish reading is considered high.

Since the June 4th intraday low the SP 500 has gained over 15%, and during this time the largest weekly decline was 0.6%. The fact the markets have had a very solid run, combined with the red flags listed above, suggests now is a time for increased caution.

Larger Group Themes:
The tables below show commodity, technology and defensively related group's price performance over the trailing 1, 2, 3, 5, 13 and 26 week periods.

33 Commodity Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
0
10
11
2
13
2
# in the bottom 50 groups (out of 197)
12
4
5
7
5
14

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
7
8
9
11
7
3
# in the bottom 50 groups (out of 197)
7
10
8
10
9
9

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
16
2
2
8
4
15
# in the bottom 50 groups (out of 197)
3
9
12
12
12
4

Commodity oriented groups performed comparatively poorly last week, and the move in these groups could be beginning to wane. Energy issues in particular performed poorly; 10 of 13 energy related groups finished in the bottom half of the weekly price performance list including 6 groups in the bottom 50.

Tech groups continue to meander although the Internet-Content and Internet-Network Solutions groups continue to show strength.  The Internet-Content group is ranked #18 in MarketSmith’s industry group rankings, and gained 3.1% last week finishing #2 on the weekly price performance list. The Internet-Network Solutions  group is ranked #41 in MarketSmith’s rankings, and gained 1.8% on the week finishing #12 on the weekly price performance list. Semiconductor related groups fell last week; all three semi related groups rank in the bottom 50 of the 1, 2, 3, and 5 week price performance lists.

As discussed above defensively oriented groups reversed course last week and outperformed. This type of action among the defensive groups sometimes forecasts a market pullback.

Group Performance:

Gold: For the last 4 weeks the Sector Trends blog has highlighted the move in gold and the Mining-Gold/Silver/Gems industry group. Over this period of time the group has gained 16.7% and jumped from #155 to #2 in MarketSmith’s industry group rankings. Stocks highlighted here include AUY +15.1%, SSRI +12.8%, and KGC +9.9%. The move continued last week as the Mining-Gold/Silver/Gems group gained 2.2% to finish #10 on the weekly price performance list.

Healthcare: A strong move by healthcare related industry groups last week as 10 of the 14 related groups finished in the top 40 on the weekly price performance group; this compares to the week ending 9/15 when 9 of the 14 groups finished in the bottom 50. 8 of the groups jumped 13 or more spots in MarketSmith’s industry group rankings.

MWI Veterinary Supply (MWIV) is working on a handle to go with its cup pattern. 2 consecutive quarters of +25% earnings and sales growth. RS 89, EPS 97, ROE 16%, EPS forecast +24% FY ’12, and +12% FY ’13. Very thin stock however, average daily volume only 76K. MWIV has a 109.58 pivot.

Follow up/Review:
The table below follows up on stocks highlighted by the Sector Trends blog since resuming publication 8/5/12. Note that buy points can and do change over time, check the Sector Trends Twitter feed for updates.

Open
Symbol
Date Published
Price at Publish
Current Price
Buy Point
BP hit?
Current Stop
Gain %
Comment:
FTK
8/5/12
9.96
12.73
9.96
Y
11.35
27.8%
Looks fine.
AUY
8/26/12
16.81
19.34
16.81
Y
18.25
15.1%
Closed at the bottom of its daily range Fri, could see resistance here, see monthly chart
SSRI
8/26/12
14.86
16.76
14.86
Y
15.55
12.8%
 +4.2% last week in volume 56% above avg.
MAS
9/9/12
14.15
16.25
14.50
Y
14.50
12.1%
Up 2.8% on the week in 25% higher than average volume.
BCOR
8/5/12
15.33
17.94
16.02
Y
16.30
12.0%
Surged 10.1% on Thursday in 1.5x average volume.
SCSS
8/19/12
29.81
33.36
29.81
Y
29.95
11.9%
Looks OK.
OSK
8/19/12
25.22
28.42
25.62
Y
27.00
10.9%
Looks OK.
KORS
8/19/12
52.09
57.35
52.09
Y
52.09
10.1%
Up 9.3% on 3x average volume Fri after raising guidance, secondary planned but not priced
KGC
9/9/12
9.66
10.33
9.40
Y
9.40
9.9%
Gold miners seeing heavy accumulation.
SNPS
8/19/12
31.28
33.73
31.28
Y
33.73
7.8%
Closed at its low for the day in heavy volume. Selling Monday at the open.
MHK
9/16/12
78.92
82.59
77.00
Y
77
7.3%
Got a fill on the pullback to 77 on Tuesday.
FEIC
8/5/12
52.48
56.23
51.60
Y
50.75
7.1%
Up 3% on 2x avg volume Friday. Tight volatility squeeze, & closed Fri just above upper BB
ILMN
9/9/12
45.37
48.48
45.37
Y
44.00
6.9%
Looks good, tight trading last week.
HAR
8/19/12
46.54
48.79
46.84
Y
46.75
4.2%
Slowly moving higher.
PVH
8/26/12
87.94
92.63
89.31
Y
90.00
3.7%
Looks OK.
VFC
8/19/12
153.03
158.49
153.03
Y
155.00
3.6%
Creating a short descending channel after last week's spurt.
MENT
8/19/12
15.99
16.47
15.99
Y
16.25
3.0%
Will probably get stopped out this week.
KBR
9/16/12
31.93
30.95
30.50
Y
29.5
1.5%
Pulled back to the 30.50 buy point on Thursday, now has 32.10 pivot out of cup & handle.
MYGN
9/9/12
26.83
27.38
27.10
Y
26.00
1.0%
Slow trade last week, looks OK.
FTI
9/9/12
48.54
48.76
48.52
Y
47.00
0.5%
Looks OK.
ESV
9/9/12
57.05
58.23
58.02
Y
54.69
0.4%
Looks OK.
IACI
8/5/12
53.10
53.22
52.78
Y
49.92
0.2%
Volatility squeeze break out failed on Fri as IACI fell back inside upper BB
OII
9/9/12
55.02
56.19
56.45
Y
53.50
-0.5%
Gapped higher Friday but finished near the bottom of its daily range.
CRI
8/19/12
53.43
55.45
56.01
Y
53.50
-1.0%
2% pullback last week, volume only 50% of average.
CMC
9/16/12
14.96
13.75
14.25
Y
13.75
-3.5%
Got the pullback fill @ 14.25, but too much selling, Selling Monday at the open.





Avg.

6.6%










Watch List









PIR
9/9/12
19.38
19.78

N


Waiting for a handle which might not occur.
KOG
9/23/12
9.70
9.70
9.92
N


Stopped out Tue 9/18, but will rebuy 9.92 pivot out of cup & handle base.

















   Closed



Price Sold





KOG
8/5/12
8.16
9.25
8.16
Y

13.4%
Stopped out Tuesday 9/18/12
CHS
8/19/12
16.80
18.55
16.80
Y

10.4%
Stopped out Tuesday 9/18/12
FIRE
8/19/12
51.11
54.00
51.11
Y

5.7%
Stopped out Tuesday 9/18/12
SYMC
8/19/12
18.01
18.74
18.09
Y

3.6%
Stopped out Thursday 9/20/12
IPGP
8/5/12
57.24
59.50
57.51
Y

3.5%
Stopped out Thursday 9/20/12
CRZO
8/5/12
24.67
27
26.50
Y

1.9%
Stopped out Wed 9/19/12
SCS
8/26/12
9.73
9.86
9.86
Y

0.0%
Stopped out Tuesday 9/18/12
BECN
8/19/12
27.61
27.90
28.00
Y

-0.4%
Stopped out Wed 9/19/12 during opening imbalance
RDC
9/9/12
36.14
35.5
36.50
Y

-2.7%
Volatility squeeze failed, stopped out Thursday 9/20/12
WPRT
8/26/12
34.60
33.50
34.50
Y

-3.2%
Stock never moved, loss reflects price at Friday 9/7 close.
RL
8/26/12
159.58
153.95
159.58
Y

-3.5%
Stopped out on gap down after Burberry warning Tuesday 9/11/12
CMI
8/19/12
103.19
98.50
103.19
Y

-4.5%
Stopped out at 98.50 per original note.
TEN
8/19/12
31.53
29.65
31.53
Y

-6.0%
Stopped out Thursday 9/20/12
FRAN
8/19/12
34.32
31.93
33.93
Y

-7.0%
Hit -7% stop 9/5/12, -2.9% if you sold at the open on earnings announcement.





Avg.

0.8%










Dropped
Z
8/5/12
38.63

44.00
N


Pattern aged out.
PRLB
8/5/12
37.89

39.08
N


Dud.
WPRT
8/19/12
39.03

40.40
N


Dud.
CTB
8/19/12
20.22

19.00
N


Never pulled back to buy area, now up another 16%
SKUL
8/19/12
16.66

17.76
N


Crushed this week by Morgan Stanley downgrade
IAG
9/9/12
14.06

13.50
N


Never pulled back to buy area, now up 12% from date of publish
LAD
9/9/12
31.06

30.50
N


Never pulled back to buy area, now up 5% from date of publish
PETM
9/9/12
71.44

72.50
N


Dropped though its 50 day MA Friday 9/14 in volume 68% higher than average.
TWI
9/9/12
21.17

22.25
N


Pattern failed.
CRS
9/16/12
55.70

57.44
N


Dropped due to poor price performance of industry group.