Sunday, January 13, 2013

Sector & Group Rotation Notes – 1/13/13



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.

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
2.0%
9.0%
7.1%
12.4%
16.6%
30.5%
Dow Jones Transportation Index
0.7%
6.7%
4.3%
8.7%
10.5%
7.3%
KBW Large Cap Bank Index
-1.0%
5.1%
3.7%
7.8%
6.3%
15.8%
Russell 2000
0.2%
5.8%
3.9%
7.1%
7.0%
10.0%
Philadelphia Semiconductor Index
1.3%
6.9%
4.5%
6.2%
9.9%
12.8%
Nasdaq Composite
0.8%
5.6%
3.5%
5.0%
2.7%
7.5%
Pboe Oil Service Index
-0.2%
8.2%
5.0%
4.7%
4.8%
12.4%
SP 500
0.4%
5.0%
2.9%
3.8%
3.0%
8.5%
Russell 1000 Energy Index
0.0%
5.5%
2.4%
3.2%
1.4%
9.2%
DJIA
0.4%
4.3%
2.3%
2.5%
1.2%
5.6%
Cboe Technology Index
0.7%
4.4%
2.4%
2.3%
-2.4%
3.1%
Philadelphia Gold/Silver Index
0.5%
1.7%
1.9%
0.8%
-11.6%
8.7%
Philadelphia Utility Index
-1.2%
2.6%
0.1%
0.6%
-3.6%
-6.9%

The broad based market indexes logged minor gains last week, perhaps digesting the previous week's advance. The Russell 2000 gained 0.2%, the Dow & SP 500 picked up 0.4%, while the Nasdaq led with a 0.8% gain.

Earnings season kicked off this week, with reports from Alcoa, Wells Fargo, and Monsanto. Monsanto announced Tuesday morning and delivered 0.62 vs. consensus 0.37, MON gained 2.7% on 3x average volume. On Wednesday Alcoa sold off in 2.5x average volume after only meeting expectations, but did forecast continuing strong automotive demand for aluminum. Wells Fargo's EPS announcement Friday morning beat 0.91 vs. consensus 0.89, but mortgage originations declined 10% and the stock fell back slightly in 2.5x average volume.

Earnings releases pick up next week, especially for the Money Center and Super Regional banking groups; JPM, BAC, C, GS, USB and PNC all report among numerous other banking stocks. GE, Intel and Schlumberger also report next week. The reduced number of negative preannouncements this season suggests a greater likelihood of firms meeting /beating expectations.





  



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)
8
13
14
11
12
10
# in the bottom 50 groups (out of 197)
8
1
3
2
6
4
                                                        
28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
10
7
5
8
4
3
# in the bottom 50 groups (out of 197)
4
5
6
4
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)
7
4
2
1
5
4
# in the bottom 50 groups (out of 197)
10
16
17
17
10
13

The table above shows a pickup of defensive groups in the 1 week price performance list, but 6 of the 7 were healthcare related suggesting a motive other than defensiveness on the part of investors. Last week's analysis pointed out weakness in healthcare related groups (excepting biotech) and that may be changing.

Also note tech related groups were well represented in the top 50 of the 1 week price performance list, perhaps presaging improved performance.
 
Autos: For the past 10 weeks the Sector Trends blog has highlighted the strength in Auto related issues. Last week the blog noted the heavy accumulation in TWI, and highlighted its 22.25 buy point. On Monday TWI gained 4.8% on 2x average volume, and finished the week up 7.3%.


Honda (HMC) has FY '12 EPS forecast +92% and FY '13 +26%, HMC has a 38.40 pivot out of a cup & handle base.

 
Agriculture: After Monsanto crushed earnings on Tuesday agriculture related groups took off. The Chemicals-Agricultural group (G1800) was the top ranked group on the 1 week price performance report logging a 5.2% gain. Machinery-Farm ranked #4 gaining 4.1%, and the Agricultural Operations group ranked #22 gaining 1.9%. The weekly performance was enough to vault all 3 groups into the top 50 of the trailing 5 week price performance list.

Potash (POT) had volume 50% above average last week as it broke above an 18 month descending trend line. POT is under accumulation with a accumulation/distribution rating of "A-" and a 50 day up/down volume ratio of 1.7.





Software: Software related groups performed well last week with 6 of 10 groups finishing in the top 50 of the 1 week price performance list. While one week's performance is too little upon which to call a turn, it is enough to piqué interest...

On Wednesday PDF Solutions (PDFS) rose 9.5% on 3.5x average volume, blowing through the 14.95 pivot of an 8 week flat base. PDFS is under accumulation with an accumulation/distribution rating of "A-" and an up/down volume ratio of 1.5. PDFS trades at 23 times earnings, and analysts forecast FY '12 EPS +212% and FY '13 +42%. PDFS is 7% past its pivot, but 1-2 soft days in the market could pull it back into the 5% buy zone.

 
Progress Software (PRGS) blew through its 22.25 resistance level this week on 1.6x average volume, gaining 4.8% for the week. PRGS is under accumulation with an accumulation/distribution rating of "A" and an up/down volume ratio of 1.6. PRGS trades at 25x earnings with FY '13 EPS forecast +43%, FY '14 +28%.


Cadence Design (CDNS) is 1% past its 13.79 pivot out of a 15 week consolidation. CDNS trades at 19x earnings with FY '12 EPS forecast +49%, FY '13 +20%.


Housing: Housing related groups continue their strong performance with 7 of 9 housing related stocks in the top 51 of MarketSmith's industry group rankings. Zack's recently published a housing industry outlook that you can read here.

Thor Industries (THO) has a 43.70 pivot out of a cup shaped base. Last quarter's earnings were +41% with sales +30%.


Meritage Homes (MTH) is 2% shy of a 42.28 pivot out of a 15 week consolidation. FY '13 EPS are forecast +185%, RS 90, EPS 81.


Fortune Brands (FBHS) is 3% past a 30.50 pivot out of an 8 week flat base. FY '12 EPS forecast +47%, FY '13 +33%, RS 94, EPS 67. Institutional sponsorship has increased 458 > 469 > 499 > 526 over the trailing 4 quarters.

 
Mortgages: The November 11th post pointed out weakness in the Finance-Mrtg&Rel Svc group (G6151) and speculated the group would fall out of the top ranked groups. This never came to pass as the group fell slightly and then rebounded and strengthened. Currently the group is showing no signs of weakness.

Last Monday Nationstar (NSM) jumped 16.9% on over 5x average volume after acquiring $215B in mortgage servicing assets from Bank of America. NSM expects the transaction to be immediately accretive providing incremental EPS of 0.70 - 0.80 in FY '13. NSM is now 2% past a 37.20 pivot out of 13 week first stage consolidation base.


Ocwen Financial (OCN) has a 39.83 pivot out of a second stage 11 week consolidation.


Internet Content: Over the past 5 weeks the Internet-Content group (G3334) has jumped +53 to #74 in MarketSmith's industry group ranking, and ranks #49 on the 5 week price performance list with an 8.2% gain. The group is showing accumulation with and industry group up/down volume ratio of 1.4 (#25 among all groups). 

LinkedIn (LNKD) is 1% past a 117.32 pivot out of a 16 week cup & handle base. FY '12 EPS are forecast +106% and FY '13 +79%. RS 83, EPS 99.
                       


Apparel: The Apparel-Clothing Mfg group (G2300) is showing weakness falling from #11 to #69 in MarketSmith's industry group rankings over the last 6 weeks, and ranking #164 on the 5 week price performance list with a 1.6% gain.

Despite this group weakness Michael Kors (KORS) is showing signs of accumulation. KORS has a 50 day up/down volume ratio of 1.4, and a 25 day up/down ratio of 1.6, and has seen institutional sponsorship increase 328 > 341 > 462 > 481 over the last 4 quarters. KORS looks like buy with a break of the descending trend line.



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