Sunday, September 9, 2012

Sector & Group Rotation Notes - 9/9/12



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
5.5%
6.4%
12.0%
19.3%
10.6%
-4.1%
KBW Large Cap Bank Index
4.4%
4.5%
4.3%
7.0%
13.0%
7.8%
FXE euro
1.8%
2.3%
3.8%
3.4%
2.3%
-2.5%
Philadelphia Housing Index
2.6%
2.9%
3.7%
11.8%
21.4%
19.5%
Russell 2000
3.2%
3.6%
2.2%
6.3%
8.9%
2.6%
Nasdaq Composite
2.3%
2.2%
1.9%
5.7%
9.7%
5.0%
SP 500
2.2%
1.9%
1.4%
3.4%
8.5%
4.9%
Russell 1000 Energy Index
2.8%
2.0%
1.2%
3.6%
12.9%
-1.3%
DJIA
1.5%
1.0%
0.1%
1.5%
5.9%
2.9%
Pboe Oil Service Index
2.3%
1.1%
-0.3%
3.3%
13.6%
-8.5%
Philadelphia Semiconductor Index
1.3%
0.6%
-1.0%
2.9%
7.6%
-5.1%
Philadelphia Utility Index
0.5%
-0.5%
-1.9%
-4.5%
-1.8%
2.8%
Dow Jones Transportation Index
0.7%
-1.4%
-2.9%
-0.8%
-0.3%
-2.3%

A strong week for the Markets as stocks exploded higher on Thursday after the ECB announced its bond purchasing program. The outperformance of the Nasdaq and Russell 2000 speaks to the health and strength of the market, the Russell 2000 has nearly doubled the performance of the SP 500 over the trailing 5 weeks, and even leads over the trailing 13 weeks. This was also seen in the volume of the Nasdaq vs. the SP 500; on Thursday and Friday of last week the volume on the Nasdaq was +19% and +8%, on the SP 500 +7% and -1%.

Two weeks ago the Sector Trends blog noted gold was emerging from a volatility squeeze. That move continued this week as the Philadelphia Gold/Silver Index jumped 5.5%. All of the week's gains occurring Thursday and Friday after the ECB announcement, previous to this announcement earlier gains came after Bernanke's comments regarding the likelihood of QE3. This suggests investors fear these actions will result in an inflationary debt monetization. Additional discussion of the opportunity this presents can be found in the Group Performance section below. 

Although not reflected in the data above, copper prices increased when China approved a multi-billion dollar infrastructure program. China approved 60 infrastructure projects worth more than $150 billion, and copper prices have rebounded to levels not seen since mid May.




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)
12
1
2
4
10
3
# in the bottom 50 groups (out of 197)
6
7
12
6
6
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)
5
7
8
10
7
3
# in the bottom 50 groups (out of 197)
3
6
7
2
10
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)
5
6
11
7
6
14
# in the bottom 50 groups (out of 197)
15
14
9
11
11
2

Commodity oriented groups had a strong week led by energy and metals related groups. Looking at the 26 week rankings these same groups are still mired deep within the red, suggesting room for further price appreciation.

While technology groups have recovered somewhat from the drubbing they took earlier this summer their performance to date can best be described as mixed. Looking at the trailing 3 week price performance strength in tech is seen in the Internet & Software groups, while the most obvious weakness is seen in the semiconductor related groups.

Since resuming publication 8/5/12 the Sector Trends blog has pointed out the rotation out of defensively oriented groups, and even tweeted on Wednesday that "...defensive groups are quiet". This continuing  rotation was even more pronounced last week, and despite the Philadelphia Utility Index managing its first weekly gain in 6 weeks all 4 Utility related industry groups finished in the bottom 50 on the 1 week price performance list.

Group Performance:
Two weeks ago the Sector Trends blog noted that gold had broken out of a volatility squeeze, and over the trailing 3 weeks the Mining-Gold/Silver/Gems group is the top ranked group as measured by price performance with a gain of 13.6%.

As was pointed out in the 8/26/12 blog post, and in subsequent tweets, the move in gold has been directly tied to Fed Chairman Bernanke's comments suggesting QE3 is imminent. Gold's response to government action continued Thursday as the Philadelphia Gold/Silver Index gained 2.5% after Thursday's ECB announcement, and another 3.2% Friday after the weak employment numbers increased the odds of Fed action.

This is setting up an environment where the odds seem to favor QE3 and thus a continuation higher for gold prices. The daily chart below highlights the points made in the above paragraph, and suggests 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.


  • Yamana Gold (AUY) was featured in the 8/26 blog post and has since gained 6.1%. At current levels it appears to have hit resistance at 18, especially after closing Friday at the low of its daily range. Taking profits here pending QE3 might be advisable with an alert set at 18.25 for a possible repurchase.  
  •  Silver Standard (SSRI) was also featured in the 8/26 blog post and remains a very attractive chart with a 15.20 pivot out of a cup & handle pattern.

  • Iamgold (IAG) looks like a buy on a pullback to 13.50ish, although we may not get it. Analysts project FY '13 EPS of 1.47 giving IAG a forward PE of 9.6. IAG is under heavy accumulation with an accumulation/distribution rating of "A-", a 50 day up/down volume ratio of 1.5, and a 25 day ratio of 2.4! 
  •  Kinross Gold (KGC) broke out of an 18 week consolidation on Friday jumping 5.8% on over 2x average volume. KGC remains 47% below its 52 week high. KGC's accumulation/distribution rating is "B+", and has a 50 day up/down volume ratio of 1.1, and a 25 day ratio of 1.5. KGC is 4.2% past a 9.27 buy point and could be picked up on a small pullback to 9.40ish.



Energy related groups rank popped last week with 5 groups ranking in the top 50 on the weekly price performance list. The chart below of the Philadelphia Oil Service Index suggests energy names are poised to continue moving higher; note the strong EPS projections of the energy stocks which follow.


  • Oceaneering International (OII) is seeing heavy accumulation with an accumulation/distribution rating of "A-" and a 50 day up/down volume ratio of 1.6. Analysts forecast FY '12 EPS +32%, and FY '13 EPS +22%. OII has a 56.45 pivot out of a 27 week cup & handle base.
  • FMC Technologies (FTI) has a 48.52 pivot out of a 28 week cup & handle base. Analysts project FY '12 EPS +27% and FY '13 EPS +24%. Volume is drying up here in the handle.
  • Ensco PLC (ESV) has a 58.02 pivot point out of a 27 week cup and handle base. The accumulation/distribution rating is a "B+", and analysts project FY '12 EPS +60%, and FY '13 +32%. 
  •  Flotek (FTK) has gained 20% since being featured in the 8/5/12 blog post. FTK has now developed a 12.63 pivot out of a cup & handle base, which would represent an opportunity to add shares. Analysts project FY '12 EPS +50%, and FY '13 EPS +47%, and the CEO has stated he does not "fear analyst projections are too aggressive". FTK currently trades at a 15x trailing earnings.
  • Rowan Companies (RDC) has set up a nice volatility squeeze with very tight Bollinger Bands. RDC is under accumulation with both the 50 and 25 day up/down volume ratios reading 1.5. Analysts project FY'12 EPS +81% and FY '13 EPS +70% giving RDC a forward PE slightly above 10 as measured by FY '13 estimates. RDC has a 36.50 buy point.


Three weeks the Sector Trends blog wrote "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". That "interesting action" has continued with 4 of the 5 Auto related groups ranking in the top 50 on the 2 week price performance list. Even the Auto Manufacturers group has joined in, gaining 6.2% last week (#8).

  • Titan International (TWI) flashed some interesting price action in heavy volume Thursday and Friday of last week, and looks as though it could move higher out of descending triangle pattern. Analysts forecast FY '12 EPS +59% and FY '13 +18%; and institutional sponsorship has increased from 288 funds to 305 over the last quarter. Buy point 22.25.


The Building related groups continue to move higher, and 4 building related groups rank in the top 30 of MarketSmith's industry group rankings.

  • Masco Corp. (MAS) has a 50 day up/down volume ratio of only 1.0, but the 25 day ratio is 1.9 suggesting recent accumulation. Analysts forecast FY '12 EPS +999%, and FY '13 +107%. Buy point 14.50.


Health related industry groups are showing strength with 8 groups ranked in the top 50 on the 3 week price performance list, and 6 groups ranked in the top 50 of MarketSmith's industry group rankings.

  • Myriad Genetics (MYGN) is seeing some accumulation with strong gains in heavy volume last week. Buy point is 27.10.
  • Illumina (ILMN) is a buy at current its current price level after Friday's move out of this 8 week consolidation. 


Select software related groups continue to perform well, with 4 groups in the top 50 on the 3 week price performance list, and 3 groups in the top 50 of MarketSmith's industry group rankings. However, it is getting difficult to find stocks in these groups which have not already hit their buy points. The software charts below are not new, but a follow up on software issues featured in the 8/19/12 Sector Trends blog post.

  • FIRE has gained 8.5% since that post, and is approaching resistance at $58-60. As of last Thursday FIRE had run 40% in 5 weeks. As the market becomes overbought, especially if it spikes higher after a QE3 announcement, it might be time to consider taking profits, or at least tightening stops.
  •  Synopsis (SNPS) is seeing heavy accumulation and appears to have room to run.
  •  Mentor Graphics (MENT) is also seeing accumulation, and appears to have further to go.
  •  Symantec (SYMC) blew past its buy point Thursday, gaining 5.7% on nearly 2x average volume.


Retail related groups are outperforming with 10 retail related groups in the top 50 of the 3 week price performance list, and 6 groups in the top 50 of MarketSmith's industry group rankings.

  • Lithia Motors (LAD) broke out of a 5 week consolidation Thursday, and given the strength we are seeing in Auto related groups this appears to be a promising selection. RS 94, EPS 99. It is slightly extended here, waiting for a pull back towards $30 would be best.
  • Petsmart (PETM) would be a selection on a move with volume out of this 5 week consolidation. RS 90, EPS 95, institutional sponsorship has increased from 793 to 843 funds over the last quarter.
  • Pier 1 Imports (PIR) is attractive, and may have a little wind in its sails from the improvement in housing. Analysts project FY '13 EPS +25%, FY '14 +16%, PE 20. RS 92. The Relative strength line has dipped slightly over the last few days as PIR went past its pivot out of a cup shaped base, perhaps suggesting it will build a handle. For now PIR is one for the watch list.
  

Follow up/Review:
The table below follows up on stocks mentioned since the Sector Trends blog resumed publishing 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
11.95
9.96
Y
10.89
20.0%
Looks good. Has developed cup & handle with 12.63 buy point, can add there.
KOG
8/5/12
8.16
9.44
8.16
Y
8.70
15.7%
Consider taking profits here, could see resistance at 9.55. Depends on your time frame.
CHS
8/19/12
16.80
19.37
16.80
Y
17.97
15.3%
Still showing heavy accumulation.
IPGP
8/5/12
57.24
63.30
57.51
Y
56.51
10.1%
Looks OK.
FIRE
8/19/12
51.11
55.45
51.11
Y
53.20
8.5%
Consider profits here or at $58 - $59, as of Thursday had gained +40% in 5 weeks.
SNPS
8/19/12
31.28
33.70
31.28
Y
31.28
7.7%
Heavy accumulation here.
KORS
8/19/12
52.09
56.03
52.09
Y
49.00
7.6%
Still running hard.
MENT
8/19/12
15.99
17.09
15.99
Y
16.25
6.9%
Heavy accumulation, steady move higher. Has developed ascending trend line.
AUY
8/26/12
16.81
17.84
16.81
Y
16.81
6.1%
 Consider taking profits. Finished Fri @ bottom of its daily range & near resistance.
PVH
8/26/12
87.94
94.51
89.31
Y
89.31
5.8%
Looks OK.
SCSS
8/19/12
29.81
31.38
29.81
Y
28.75
5.3%
Blew out of volatility squeeze Thursday, re-tweeted this set up on Wed.
FEIC
8/5/12
52.48
55.03
51.60
Y
50.75
4.9%
Still under accumulation, holding up well.
OSK
8/19/12
25.22
26.77
25.62
Y
24.50
4.5%
Tweeted Wed w/ revised pivot and noted similarity to CTB pattern. Played out perfectly.
SYMC
8/19/12
18.01
18.83
18.09
Y
18.09
4.1%
Tweeted revised buy point 8/27, broke out Thursday on 2x average volume.
CRZO
8/5/12
24.67
27.34
26.50
Y
26.50
3.2%
Moved out of volatility squeeze Wednesday, could use more volume.
TEN
8/19/12
31.53
32.49
31.53
Y
29.65
3.0%
Looks OK, needs volume.
HAR
8/19/12
46.54
48.01
46.84
Y
45.25
2.5%
Low volume breakout but had a powerful pocket pivot earlier.
SSRI
8/26/12
14.86
15.19
14.86
Y
13.75
2.2%
Heavy accumulation.
CRI
8/19/12
53.43
56.98
56.01
Y
53.50
1.7%
Pattern developed into double bottom with 56.01 pivot.
BECN
8/19/12
27.61
28.37
28.00
Y
25.95
1.3%
Strength in housing should help move this higher.
RL
8/26/12
159.58
161.38
159.58
Y
153.95
1.1%
Nice action Friday, likely to move slowly towards $180.
VFC
8/19/12
153.03
153.63
153.03
Y
149.95
0.4%
Vol drying up here, seems to want higher. But accumulation poor, keep tight stops.
BCOR
8/5/12
15.33
15.94
16.02
Y
14.75
-0.5%
Still under accumulation, holding up well.
IACI
8/5/12
53.10
51.47
52.78
Y
49.92
-3.1%
Stop just under the 50 DMA. Still being accumulated.





Avg.

5.6%










Watch List
SKUL
8/19/12
16.66
15.60
17.76
N


Potential short squeeze, watch it closely.
SCS
8/26/12
9.73
11.50
9.86
N


Wait for earnings 9/19









Closed
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.









Dropped
WPRT
8/19/12
39.03
33.42
40.40
N


Dud.
Z
8/5/12
38.63
42.63
44.00
N


Pattern aged out.
PRLB
8/5/12
37.89
32.39
39.08
N


Dud.
CTB
8/19/12
20.22
22.00
19.00
N


Never pulled back to buy area, now up another 10%

1 comment:

  1. Thanks a lot for sharing your
    great work!

    ReplyDelete