Sunday, September 16, 2012

Sector & Group Rotation Notes - 9/16/12



Listed below are notes from the author's 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
7.1%
13.0%
13.9%
21.2%
17.0%
8.2%
Philadelphia Housing Index
6.7%
9.5%
9.8%
15.7%
29.4%
22.6%
KBW Large Cap Bank Index
4.8%
9.4%
9.5%
10.8%
15.5%
3.8%
Russell 2000
3.2%
6.5%
6.9%
7.9%
12.1%
4.2%
FXE euro
2.5%
4.3%
4.9%
6.7%
3.6%
-0.5%
Nasdaq Composite
1.5%
3.8%
3.7%
5.4%
10.8%
4.2%
Russell 1000 Energy Index
4.2%
7.2%
6.3%
5.4%
15.0%
1.7%
Pboe Oil Service Index
5.1%
7.6%
6.3%
5.2%
18.5%
-5.3%
SP 500
1.9%
4.2%
3.9%
4.3%
9.2%
4.4%
Dow Jones Transportation Index
3.4%
4.2%
1.9%
3.0%
2.4%
-2.5%
DJIA
2.3%
3.8%
3.3%
2.9%
6.5%
2.7%
Philadelphia Semiconductor Index
1.3%
2.6%
1.9%
0.1%
8.4%
-6.6%
Philadelphia Utility Index
-0.4%
0.1%
-0.9%
-3.9%
-3.2%
2.9%

Last week the major equity indexes rallied after the Fed announced QE3, and for the week gained from a low of 1.5% on the Nasdaq to a high of 3.2% for the Russell 2000. The Russell 2000 has gained 7.9% over the trailing 5 weeks vs. 4.3% for the SP 500, and this outperformance demonstrates the rotation into riskier assets. Note that the technology oriented Nasdaq also trails the Russell 2000, and by a substantial margin. Over the trailing 1 week period the return of the Russell  2000 was more than double that of the Nasdaq, over the trailing 2 weeks +70%, trailing 3 weeks +84% and trailing 5 weeks +45%.

Three weeks ago in the 8/26/12 post this blog wrote “Gold broke out of a descending triangle pattern and volatility squeeze this week” and since then the Philadelphia Gold/Silver Index has gained 13.9% and the Mining-Gold/Silver/Gems industry group has gained 14.1%. This move is discussed in greater detail below in the “Group Performance” section.

The Philadelphia Utility Index fell 0.4% last week, marking the sixth weekly decline over the past 7 weeks. In conjunction with this the MarketSmith utility related industry groups have pulled back to support, and now appear to have stabilized. Readers managing income oriented portfolios may find this a good time to consider new positions.

Since the ECB bond purchasing announcement on 9/6/12 the Dow Jones Transportation Index has gained 5.4% in moderate volume.




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)
15
16
10
7
15
3
# in the bottom 50 groups (out of 197)
3
4
4
6
4
16

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
6
4
5
6
3
4
# in the bottom 50 groups (out of 197)
2
3
4
4
8
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)
1
1
1
4
4
14
# in the bottom 50 groups (out of 197)
24
19
17
13
17
3

Since resuming publishing 8/5/12 the Sector Trends blog has highlighted the rotation into commodity oriented groups. That move could hardly have been more pronounced than it was this past week as 15 of these groups finished in the top 50 based on weekly price performance, and only 3 in the bottom 50.

Technology related groups are evenly distributed over the performance spectrum; last week 14 groups finished in the top half of the weekly price performance list and 14 finished in the bottom half. While some technology firms will undoubtedly perform well, current market performance suggests greater returns will be found in the commodity & industrial related groups.

In a move this blog has chronicled for the past 6 weeks money continued to rotate out of defensively oriented groups as only one of these groups managed to finish in the top 50 for the week, and 24 finished in the bottom 50.

Group Performance:

Gold: For the last 3 weeks this blog has chronicled the move in gold, and last week wrote “This is setting up an environment where the odds seem to favor QE3 and thus a continuation higher for gold prices… the index may be entering an area of resistance around 180. Ideally we would see the index and mining stocks base here pending a QE3 announcement.” And that’s exactly what happened. The chart below is the same chart of the Philadelphia Gold/Silver Index that was posted last week (updated with trading data).  


Three of the gold mining stocks recommended in previous posts have hit their buy points: AUY +11.7%, KGC +9.3%, and SSRI +8.2%. 


Energy:
The Sector Trends blog first pointed out the improving prospects of energy related groups in the 8/5/12 post, and the three energy related names highlighted in that post (FTK, KOG, CRZO) have since gained an average of 20.1%. Last week this blog wrote: “The chart below of the Philadelphia Oil Service Index suggests energy names are poised to continue moving higher”. The same chart appears below updated with last week’s trading:

  

All 5 of the energy related stocks featured in last week’s post hit their buy points, including FTK which broke through a cup & handle pivot providing an opportunity to add shares. Scanning these groups this week most stocks seem slightly extended, but just a minor pullback would pull many back into attractive buy areas. Those readers managing income related portfolios might consider Ecopetrol SA (EC, 6.7%) and Linn Energy (LINE, 7.1%).

Housing: 
Housing related industry groups have been very strong since last October, and they were dominant again last week as 7 housing related industry groups finished in the top 50 of the weekly price performance list.

  • Mohawk Industries (MHK) broke out of an 18 week consolidation on Thursday and is now 5% past a 75.44 pivot. FY ’12 EPS forecast +24%, FY ’13 +25%. The Accumulation/Distribution rating is “A-“ and the up/down volume ratio is 1.6. The risk of getting stopped out is to high at the current price, but MHK would be a buy on a pullback to 77ish.
  • KBR Inc. (KBR) looks headed higher with an Accumulation/Distribution rating of “A-“ and the up/down volume ratio is 1.4. Buy point 30.50ish on a pullback.
 

Steel:
Steel and metals related groups had a strong week with 3 out of 4 groups ranked in the top 37 on the 1 week price performance list, and 3 out of 4 in the top 20 on the 2 week price performance list. However, a word of caution - these groups have had similar price spikes in the past only to quickly fade, so selections from these groups deserve extra due diligence and close monitoring.

  • Carpenter Technology (CRS) manufactures and distributes various specialty metals. Analysts estimate FY ’13 EPS +19% and FY ’14 +23%, last quarter’s EPS and sales were +44% and +33% respectively. The accumulation/distribution rating is “A-“ and the up/down volume ratio is 1.3. Sterne Agee believes that Carpenter's EBITDA and revenue guidance are conservative, and maintains a $75 target; JPMorgan raised estimates due to its focus to secular growth areas of aerospace and energy. CRM buy points would be 53ish on a pullback, or on a move though 57.44.

  • This weekly chart of Commercial Metals (CMC) shows a break of the descending trend line. The Accumulation/Distribution rating is “A-“ and the up/down volume ratio is 1.2. Analysts forecast FY ’12 EPS +162% and FY ’13 +52%. CMC has a forward PE of 10 using FY ’13 estimates. CMC has gained 16.5% in the past two weeks so buying here looks dicey, but it’s definitely one for the watch list – watch to see if it consolidates, or take a 14.25 buy point on a pull back.
 

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
12.91
9.96
Y
11.35
29.6%
Broke through cup & handle add on point on Thursday. Only 18c past latest pivot.
KOG
8/5/12
8.16
9.81
8.16
Y
9.25
20.2%
Hung around resistance Mon-Wed then moved higher Thu & Fri. FY '13 forward PE only 13.
OSK
8/19/12
25.22
29.76
25.62
Y
27.00
16.2%
Exploding higher, +11.5% on the week. Very strong.
CHS
8/19/12
16.80
19.11
16.80
Y
18.55
13.8%
 +14% from late BP, +19% from actual pivot, churned on Fri w/ vol +36%. Consider profits.
IPGP
8/5/12
57.24
65.38
57.51
Y
59.50
13.7%
Looks fine.
SCSS
8/19/12
29.81
33.59
29.81
Y
29.95
12.7%
Looks fine.
AUY
8/26/12
16.81
18.77
16.81
Y
17.90
11.7%
Looks OK.
BCOR
8/5/12
15.33
17.70
16.02
Y
16.02
10.5%
 +10.1% for the week, up and out of 6 week consolidation.
CRZO
8/5/12
24.67
29.25
26.50
Y
27.00
10.4%
 +7% for the week, closed at its high for the day & week on Friday
KGC
9/9/12
9.66
10.27
9.40
Y
9.40
9.3%
Pulled back to 9.40 buy point and took off after QE3 announcement (as predicted)
MAS
9/9/12
14.15
15.80
14.50
Y
14.50
9.0%
Through the buy point on Wednesday, strong volume Thursday & Friday
BECN
8/19/12
27.61
30.41
28.00
Y
27.90
8.6%
Pushing higher in aabove average volume.
SSRI
8/26/12
14.86
16.08
14.86
Y
15.25
8.2%
Rose +6.5% Thursday & Friday in heavy volume.
SNPS
8/19/12
31.28
33.61
31.28
Y
32.20
7.4%
Looks OK.
FIRE
8/19/12
51.11
54.91
51.11
Y
54.00
7.4%
Keeping a very tight stop at $54.
VFC
8/19/12
153.03
164.33
153.03
Y
155.00
7.4%
 +6.8% for the week, volume +41% Thursday & Friday
SCS
8/26/12
9.73
10.50
9.86
Y
9.86
6.5%
Thru pivot emphatically on Thu, volume only average, could be waiting for earnings 9/19
PVH
8/26/12
87.94
94.79
89.31
Y
90.00
6.1%
Looks fine.
MENT
8/19/12
15.99
16.94
15.99
Y
16.25
5.9%
Looks OK.
SYMC
8/19/12
18.01
19.14
18.09
Y
18.74
5.8%
Consider taking profits, bearish hanging man pattern Friday in +22% volume.
HAR
8/19/12
46.54
49.38
46.84
Y
46.75
5.4%
Looks fine.
FEIC
8/5/12
52.48
55.31
51.60
Y
50.75
5.4%
Volume drying up, increasing stop to 52.95.
ILMN
9/9/12
45.37
47.79
45.37
Y
44.00
5.3%
Looks fine, +5.3% last week in volume 74% above average.
FTI
9/9/12
48.54
49.96
48.52
Y
47.00
3.0%
Looks good, +3% on the week in volume almost 50% higher than previous week
KORS
8/19/12
52.09
53.59
52.09
Y
49.00
2.9%
 -3.9% on the week but looks OK.
RDC
9/9/12
36.14
37.14
36.50
Y
35.50
1.8%
Moved out of volatility squeeze early in the week, but cooled off Thursday & Friday
OII
9/9/12
55.02
57.42
56.45
Y
54.39
1.7%
Cleared the buy point Wednesday, looks OK.
MYGN
9/9/12
26.83
27.53
27.10
Y
26.00
1.6%
Pulling away from the buy zone.
TEN
8/19/12
31.53
31.92
31.53
Y
29.65
1.2%
Looks OK.
CRI
8/19/12
53.43
56.59
56.01
Y
53.50
1.0%
Building a small horizontal channel just above the pivot point.
ESV
9/9/12
57.05
58.13
58.02
Y
54.69
0.2%
Broke above the cup & handle pivot on Wednesday.
IACI
8/5/12
53.10
52.65
52.78
Y
49.92
-0.8%
Consolidating.





Avg.

7.8%










Watch List
TWI
9/9/12
21.17
21.21
22.25
N


 +5.9% on more than 2x avg volume Friday, looks like its getting ready to go...
PIR
9/9/12
19.38
19.78

N


Waiting for a handle which might not occur.

















   Closed



Price Sold





CMI
8/19/12
103.19
98.50
103.19
Y

-4.5%
Stopped out at 98.50 per original note.
FRAN
8/19/12
34.32
31.93
33.93
Y

-7.0%
Hit -7% stop, -2.9% if you sold at the open on earnings announcement.
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, has now recovered









Dropped
WPRT
8/19/12
39.03

40.40
N


Dud.
Z
8/5/12
38.63

44.00
N


Pattern aged out.
PRLB
8/5/12
37.89

39.08
N


Dud.
CTB
8/19/12
20.22

19.00
N


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

17.76
N


Crushed this week by Morgan Stanley downgrade
PETM
9/9/12
71.44

72.50
N


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

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