Sunday, January 6, 2013

Sector & Group Rotation Notes – 1/6/13



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
KBW Large Cap Bank Index
6.2%
4.8%
9.1%
10.6%
4.6%
18.9%
Dow Jones Transportation Index
6.0%
3.6%
6.7%
8.1%
9.7%
6.5%
Philadelphia Housing Index
6.8%
5.0%
9.0%
7.3%
7.8%
28.3%
Russell 2000
5.7%
3.7%
6.7%
7.0%
4.3%
8.9%
Pboe Oil Service Index
8.4%
5.2%
8.5%
6.4%
5.7%
14.8%
Philadelphia Semiconductor Index
5.5%
3.1%
4.4%
6.2%
3.8%
5.8%
Russell 1000 Energy Index
5.5%
2.4%
3.7%
4.1%
-0.1%
9.9%
SP 500
4.6%
2.5%
3.7%
3.6%
0.4%
8.3%
DJIA
3.8%
1.9%
2.3%
3.1%
-1.3%
5.2%
Nasdaq Composite
4.8%
2.7%
4.4%
3.0%
-1.1%
5.6%
Philadelphia Utility Index
3.8%
1.3%
2.6%
2.0%
-3.2%
-4.3%
Philadelphia Gold/Silver Index
1.2%
1.4%
-1.3%
-4.5%
-15.1%
3.3%


Last week the markets sprinted higher after Washington arrived at a partial solution to the fiscal cliff. Index performance was stellar and requires little further explanation here, but there are some observations with regard to group rotation.

The notes from two weeks ago highlighted the Dow Jones Transportation Index breaking through its descending trend line, last week it retested but made a strong move higher again this week. Strength in transports is a plus for the market.

Energy related industry groups surged higher and the Pboe Oil Service Index appears on the cusp of breaking higher through a 20 month long descending trend line. More detail on this development can be found below.

Two weeks ago the blog noted potential leadership emerging in tech oriented industry groups. While the groups are not doing poorly, neither are they acting especially strong. As the tables below show the strength in the market is in commodity and industrial related groups.

Only two of MarketSmith's 197 groups lost ground last week, the Retail-Discount&Variety group (G5331) lost 0.7%, and the Medical-Managed Care group (G8061) fell 0.1%. While there are exceptions, generally speaking the retail and health care sectors are weak and should be avoided.








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)
22
18
11
10
12
10
# in the bottom 50 groups (out of 197)
0
2
1
1
4
6
                                                       
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
3
6
9
3
3
# in the bottom 50 groups (out of 197)
7
10
4
4
12
13

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
3
0
1
2
5
2
# in the bottom 50 groups (out of 197)
14
19
20
15
13
11


Global: Four weeks back the December 9th blog post highlighted the emerging strength in global ETF's following China's  Communist Party chief Xi Jinping remarks suggesting he believed the Chinese economy had bottomed and that inflation was under control.

Market Vectors Vietnam ETF (VNM) was highlighted and has since gained 16.8% to make it the best performing non-levered global ETF over the trailing 4 week period. FXI was also highlighted and has gained 8.4%, and PXH has gained 5.4%. International holdings should continue to be of interest to the reader.

 

Industry Group Performance:

Autos: The Sector Trends blog has been highlighting the performance of auto related groups for the past 9 weeks with profitable results,  DLPH +17%, F +17%, and last week LAD and ABG bolted higher, LAD +12.2% and ABG +12.4%. 



TWI looks interesting here at the 200 day MA, note the high volume. Friday's action finishing at the top of its daily range suggests bulls are gaining the upper hand.



Staffing: Five weeks ago the blog highlighted the performance of the Comml Svcs-Staffing group (G1011) and over the trailing 5 weeks the group has gained 14.6%, ranking #3 on the 5 week price performance list and jumping +67 to #9 in MarketSmith's industry group rankings. RHI has gained +18% from its 28.26 buy point, and last week ASGN bolted higher gaining 15.7% for the week.


  

Energy: Energy related groups had a very strong week. Of the 13 energy related groups 11 of them finished in the top 50 of the 1 week price performance list with gains ranging from +6.2% to +18.3% (solar). The two groups not cracking the top 50 were the Oil&Gas-Refining/Mktg group, #91, +5.0%, and the Oil&Gas-Integrated group, #101, +4.8%.

Kodiak Oil & Gas (KOG) has a 9.97 pivot out of a cup and handle base. Analyst's forecast FY '12 EPS +318% and FY '13 +54%, and KOG has had triple digit sales and earnings increases for the last 3 quarters. 


Flotek Industries (FTK) has FY '12 earnings forecast +46%, and FY '13 +29%. MarketSmith pattern recognition shows FTK 8% past the pivot of a cup and handle base, but its much closer to the descending trend line drawn on the weekly chart below.


Noble Energy (NBL) has a 105.46 pivot out of a nearly year long consolidation. The accumulation/distribution rating is "B+", up/down volume ratio is 1.3, and FY '13 earnings are forecast +43%. Last weeks volume was light suggesting NBL might base around the pivot area before moving higher.


Gran Tierra Energy (GTE) has a 6.01 pivot out of a cup & handle base. Accum/Dist rating is B, the up/down volume ratio is 1.3, and analysts forecast FY '13 EPS +88%. 


Oasis Petoleum (OAS) looks attractive, especially if we see a pullback towards the descending trend line. The accum/dist rating is "A", the up/down volume ratio is 1.2, and institutional sponsorship has increased 360 > 374 > 393 > 410 over the last 4 quarters. Analysts project FY '12 EPS +73% and FY '13 +63%. 


Ensco PLC (ESV) is 6% past a 59.30 pivot. ESV has seen institutional sponsorship increase from 742 funds in Dec. 2011 to 1038 funds in Dec. 2012. FY '12 EPS forecast +61%, FY '13 +31%. A little extended here but the moderate volume last week suggests we might get a pull back into the buy zone.


Transocean (RIG) agreed to pay a $1.4B fine to settle its Deepwater Horizon dispute with the US Department of Justice; investors responded by sending the stock +11.7% in about 4x average volume over the course of Thursday & Friday. FY '12 EPS are forecast +131%, FY '13 +41%, PE 15. With a little luck it might flag here for a few days setting up an entry.


 


Healthcare: Healthcare related industry groups underperformed last week relative to other groups. Out of 14 healthcare related groups, only 3 finished in the top half of the weekly price performance list and 8 of the groups finished in the bottom 50 (out of 197 groups).

The November 4th blog posting pointed out weakness in the Medical-Biomed/Biotech group (G8063), and since that time the group has fallen in MarketSmith's industry group rankings from #10 to #41. Recently however, the group has consolidated and last week broke above this consolidation with a 7.7% gain, good enough to finish #20 on the weekly price performance list. Names from this group are worthy of review by the reader.





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