Sunday, October 14, 2012

Sector & Group Rotation Notes - 10/14/12



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 Housing Index
-5.7%
-1.0%
-6.3%
3.7%
11.9%
28.7%
Philadelphia Gold/Silver Index
-3.5%
-3.2%
-5.3%
3.1%
23.1%
10.3%
KBW Large Cap Bank Index
-2.7%
0.9%
-0.4%
1.5%
8.9%
6.0%
FXE euro
-0.6%
0.8%
-0.3%
1.1%
5.7%
-1.1%
Philadelphia Utility Index
-0.8%
-0.1%
0.9%
0.3%
-3.4%
4.8%
DJIA
-2.1%
-0.8%
-1.8%
0.3%
4.3%
3.7%
Dow Jones Transportation Index
0.0%
3.1%
2.7%
0.0%
-2.8%
-2.9%
SP 500
-2.2%
-0.8%
-2.2%
-0.6%
5.3%
4.3%
Russell 1000 Energy Index
-1.5%
-1.3%
-2.9%
-0.7%
7.7%
5.1%
Russell 2000
-2.3%
-1.7%
-3.8%
-1.8%
2.8%
3.4%
Nasdaq Composite
-2.9%
-2.3%
-4.3%
-2.9%
4.7%
1.1%
Pboe Oil Service Index
0.7%
-1.2%
-5.4%
-3.4%
7.2%
-3.9%
Philadelphia Semiconductor Index
-4.3%
-4.1%
-7.2%
-8.6%
2.7%
-11.9%


On Friday, September 21 the Nasdaq hit a post crash high of 3196.93. Contemporaneously on  Sunday, September 23 the Sector Trends blog noted that the market was "beginning to flash some warning signs" and that "now is a time for increased caution." One week later on September 30 the blog wrote "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." Since that September 23rd blog post the Nasdaq has picked up 6 distribution days and declined 4.3%.

On Monday the World Bank reduced its outlook for 2012 Asian growth to 7.2% from 7.6%, and on Tuesday the declines accelerated when the IMF revised global growth estimates downward and stated the "risks for a serious global slowdown are alarmingly high" and that "no significant improvements appear in the offing". You can read the WSJ coverage here.

On the other hand, economic data last week was mixed to positive. The Beige Book indicated improving residential real estate conditions, that economic activity had "expanded modestly" and consumer spending was generally flat with a slight upward bias. Thursday's International Trade report indicated global trade is shrinking slightly, suggesting future economic growth will be soft. Both the Import Export Prices and PPI reports showed signs of nascent inflation, while Jobless Claims and Consumer Sentiment reports posted surprisingly strong results. And this weekend China announced September exports rose 9.9% vs. a forecast of 5%, easing worries about global consumer demand and contradicting the conclusions inferred from Thursday's International Trade report..

Earnings season has started and the impact of economic data will likely wane as the number of earnings reports pick up. Key reports from last week mostly beat consensus numbers if not investor's hopes. On Tuesday both Alcoa and Yum Brands beat and Yum raised its guidance. Costco beat on Wednesday announcing 1.39 vs 1.31 consensus but finished the day at the bottom of its range before losing 4% in Thursday and Friday's trading. Wells Fargo and JP Morgan both beat expectations Friday but fell in trading, with WFC gapping down below its 50 day MA with a 2.6% decline.

Next week close to 300 companies will announce with over a quarter of those coming from the Banking sector. Key announcements from the sector include Citigroup Inc (C) on Monday, Goldman Sachs (GS) on Tuesday, Bank Of America (BAC) on Wednesday and Morgan Stanley (MS) on Thursday.

Other companies reporting next week that could influence the market include Microsoft (MSFT), Google (GOOG), IBM and GE. Energy shares could be impacted by reports from Schlumberger  (SLB), Halliburton (HAL) and Baker Hughes (BHI), and semiconductors will see reports from Intel (INTC), ASML Holding (ASML), Sandisk (SNDK) and Xilinx (XLNX). Key transportation names reporting include rail stocks Union Pacific (UNP), CSX Corp (CSX), and Kansas City Southern (KSU).

However, positive divergences seen in some of the industry groups suggest this down turn may have already seen the majority of its losses. Last week there were more commodity oriented groups in the top 50 of the one week price performance list than defensively oriented groups, 10 vs. 6. And the energy sector placed 8 of 13 groups in the top 50, with only one group in the bottom 50.

Another positive divergence is the performance of transportation related groups and indices over the past 3 weeks. One of the developments that initially caused this blog to question the health of the market was the performance of the transports, particularly after the Fedex earnings announcement. Since then the Dow Jones Transportation index has held the support levels identified in the 9/30 blog post and has actually gained 2.7% since the 9/21 high while the Nasdaq has lost 4.3%. Additionally, 5 of 7 transportation related industry groups rank in the top 50 of the 1, 2 and 3 week price performance lists.

 



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)
10
5
5
5
10
2
# in the bottom 50 groups (out of 197)
5
7
13
8
6
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)
2
0
0
1
9
1
# in the bottom 50 groups (out of 197)
18
20
19
20
11
15

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
6
9
10
9
4
15
# in the bottom 50 groups (out of 197)
6
7
4
4
12
1

Technology oriented groups continue to take a pounding with semiconductor related industry groups getting hit particularly hard. Given the semiconductor earnings reports on tap for this week the performance of the SOX could signal whether this trend continues or begins to abate.


 
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:
ILMN
9/9/12
45.37
51.16
45.37
Y
44.00
12.8%
Looks good.
BCOR
8/5/12
15.33
17.64
16.02
Y
15.50
10.1%
Looks OK.
KGC
9/9/12
9.66
10.18
9.40
Y
9.40
8.3%
Low volume pull back.
VFC
8/19/12
153.03
161.73
153.03
Y
155.00
5.7%
Looks fine.
PVH
8/26/12
87.94
92.75
89.31
Y
90.00
3.9%
Tight 7 week channel, volume drying up a bit.
MHK
9/16/12
78.92
78.22
77.00
Y
77.00
1.6%
Has held up well while housing index fell 6.3% over the past 3 weeks.
IACI
8/5/12
53.10
53.55
52.78
Y
49.92
0.8%
Trading in a tight 11 week channel, volume drying up.
MYGN
9/9/12
26.83
27.09
27.10
Y
26.00
0.0%
Fell 4.2% last week but in volume 41% below average.














Avg.

5.4%










Watch List
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



Sold Price





FTK
8/5/12
9.96
11.35
9.96
Y

14.0%
Stopped out Monday 10/8/12
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
AUY
8/26/12
16.81
18.25
16.81
Y

8.6%
Stopped out Wednesday 9/26/12
SNPS
8/19/12
31.28
33.73
31.28
Y

7.8%
Sold Monday 9/24/12
FIRE
8/19/12
51.11
54.00
51.11
Y

5.7%
Stopped out Tuesday 9/18/12
OSK
8/19/12
25.22
27.00
25.62
Y

5.4%
Stopped out Wednesday 9/26/12
SSRI
8/26/12
14.86
15.55
14.86
Y

4.6%
Stopped out Tuesday 9/25/12
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
MENT
8/19/12
15.99
16.25
15.99
Y

1.6%
Stopped out Monday 9/24/12
SCSS
8/19/12
29.81
29.95
29.81
Y

0.5%
Stopped out Wednesday 9/26/12
SCS
8/26/12
9.73
9.86
9.86
Y

0.0%
Stopped out Tuesday 9/18/12
MAS
9/9/12
14.15
14.50
14.50
Y

0.0%
Stopped out Tuesday10/9/12
KORS
8/19/12
52.09
52.09
52.09
Y

0.0%
Stopped out Tuesday 9/25/12
HAR
8/19/12
46.54
46.75
46.84
Y

-0.2%
Stopped out Wednesday 9/26/12
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
FTI
9/9/12
48.54
47.00
48.52
Y

-3.1%
Stopped out Wednesday 9/26/12
WPRT
8/26/12
34.60
33.50
34.50
Y

-3.2%
Stock never moved, loss reflects price at Friday 9/7 close.
KBR
9/16/12
31.93
29.50
30.50
Y

-3.3%
Stopped out Tuesday 9/25/12
FEIC
8/5/12
52.48
50.75
51.60
Y

-3.3%
Stopped out Tuesday10/2/12
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
CRI
8/19/12
53.43
53.50
56.01
Y

-4.5%
Stopped out Friday 9/28/12
CMI
8/19/12
103.19
98.50
103.19
Y

-4.5%
Stopped out at 98.50 per original note.
CMC
9/16/12
14.96
13.55
14.25
Y

-4.9%
Sold Monday 9/24/12
OII
9/9/12
55.02
53.50
56.45
Y

-5.2%
Stopped out Wednesday 10/3/12
ESV
9/9/12
57.05
54.69
58.02
Y

-5.7%
Stopped out Wednesday 9/26/12
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


Pattern failed.
WPRT
8/19/12
39.03

40.40
N


Pattern failed.
CTB
8/19/12
20.22

19.00
N


Never pulled back to buy area
SKUL
8/19/12
16.66

17.76
N


Crushed Morgan Stanley downgrade
IAG
9/9/12
14.06

13.50
N


Never pulled back to buy area
LAD
9/9/12
31.06

30.50
N


Never pulled back to buy area
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.
PIR
9/9/12
19.38

NA
N


Pattern aged out.

 


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