Sunday, February 17, 2013

Sector & Group Rotation Notes – 2/17/13



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 13 week performance. The green and red shading denotes relative performance +/- to the SP 500 for the time period in question.

13 weeks corresponds to the market low 1 week prior to the current uptrend's 11/23/12 follow through day.

Index
1 Week Gain
2 Week Gain
3 Week Gain
5  Week Gain
13 Week Gain
26 Week Gain
Philadelphia Housing Index
2.7%
1.5%
-0.2%
4.7%
22.7%
32.2%
Dow Jones Transportation Index
0.6%
1.5%
1.3%
6.7%
21.6%
14.5%
Philadelphia Semiconductor Index
0.9%
1.9%
3.1%
6.4%
20.4%
5.8%
Pboe Oil Service Index
1.3%
0.5%
2.8%
8.5%
19.9%
9.6%
Russell 2000
1.0%
1.3%
2.0%
4.8%
18.9%
12.6%
KBW Large Cap Bank Index
0.2%
0.7%
1.8%
3.6%
16.9%
16.7%
Russell 1000 Energy Index
-0.5%
-0.3%
0.6%
4.8%
12.5%
6.8%
Nasdaq Composite
-0.1%
0.4%
1.3%
2.1%
11.9%
3.8%
SP 500
0.1%
0.4%
1.1%
3.2%
11.8%
7.2%
DJIA
-0.1%
-0.2%
0.6%
3.7%
11.1%
5.3%
Philadelphia Utility Index
-0.3%
-0.4%
0.5%
2.9%
6.5%
-2.4%
Cboe Technology Index
-0.9%
1.2%
2.2%
-0.8%
5.5%
-6.0%
Philadelphia Gold/Silver Index
-5.6%
-5.3%
-4.6%
-11.9%
-13.1%
-10.1%

Last week the Nasdaq and Dow each fell 0.1%, while the S&P 500 gained 0.1% and the Russell 2000 picked up 1.0%. The S&P 500 and Russell 2000 logged gains for the 7th straight week. Over the trailing 13 weeks the Russell 2000 has outperformed the other major indexes by over 50%.

Economic data released last week had little effect on the markets. Wednesday's Retail Sales report showed slowing growth after the payroll tax increase, but met consensus estimates with 0.1% growth. Jobless claims data released Thursday came in 20K under consensus at the lowest levels since the beginning of the recovery. Industrial production figures released Friday showed a 0.1% decline versus a consensus expectation of +0.3%. However, this followed strong performances in November and December. Markets reacted briefly to Thursday's news that Germany's fourth quarter GDP contracted more than forecast but quickly recovered.

Earnings releases continued to drive the performance of individual stocks. The Internet-Content group (G3334) in particular prospered with Trulia (TRLA) +41.9%, Angie's list (ANGI) +27.3%, Zillow (Z) +25.1% and Blucora (BCOR) +14.7%. From the same group Bankrate (RATE) fell 13.9%, and Trip Advisor (TRIP) gave back 5.5%. Conversely, from the same sector the Internet-Network Sltns group (G3586) was hammered, with 7 of the 8 names reporting losing for the week, especially Logmein (LOGM) -28.0%, and Rackspace (RAX) -19.6%.

Among stocks reporting recently covered here Michael Kors (KORS) gained 10.8%, and P D F Solutions (PDFS) +6.5%. On Assignment (ASGN) fell 8.7% for the week after missing earnings and lowering guidance.

463 companies will report next week, 253 with market caps 1B+. Key names reporting include Lumber Liquidators (LL), Qihoo (QIHU), Lithia Motors (LAD), Asbury Automotive (ABG), Pandora (P), Sodastream (SODA), Financial Engines (FNGN), Corelogic (CLGX), Cabot Oil & Gas (COG), Toll Brothers (TOL) and numerous others.








 

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.

30 Commodity Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
7
7
8
7
13
9
# in the bottom 50 groups (out of 197)
11
11
10
12
6
8

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

For the third consecutive week there are no clear patterns of rotation between the three different industry group themes when observed from the perspective of trailing price performance.

With only two groups in the bottom 50 of the 3 week price performance lists, compared to 12 in the bottom 50 of the 13 week list, defensively oriented groups are improving but for the moment this appears to be a normal return to mean performance as opposed to a deliberate rotation into defensive names.


Industry Group Performance:

It's becoming difficult to discern group & sector rotation in the market, quite simply because just about everything is working. Consider the following observations of the trailing 13 week period:
- 75% of the industry groups have price performance superior to the S&P 500's 11.8% gain.
- 49% of the groups are beating the S&P 500 by more than 33%
- 38% of the groups are beating the S&P 500 by more than 50%
- 18% of the groups (approximately the top 40 as measured by price performance) by more than 100%
- only 4 groups show a loss. 

Energy: For the past three weeks the Sector Trends blog has pointed out the strength in the Oil&Gas-Drilling group (G1381), Oil&Gas-Field Services group (G1380), and Oil&Gas-Refining/Mktg group (G2900) groups. That continued again this past week with the Oil&Gas-Drilling group gaining 2.4% and the Oil&Gas-Field Services group gaining 1.4%.  Also performing well is the Oil&Gas-Machinery/Equip group (G3533) which gained 1.8% for the week and jumped +16 in MarketSmith's industry group rankings to #37. That the move in energy is concentrated in these groups can also be seen in the Index table above - Pboe Oil Service Index gained 1.3% for the week while the broader based Russell 1000 Energy Index lost 0.5%, over the trailing 5 week period the performance differential widens to 8.5% vs. 4.8%, a 77% difference. (Note: MarketSmith charts are showing an erroneous 3% weekly decline for the Oil&Gas-Refining/Mktg group (G2900) group, the actual performance is probably 0.0% - 0.5%. The error has been reported.)

Hornbeck Offshore Services (HOS) was featured here two weeks ago @ 38.62 after breaking out of an ascending triangle pattern. It has since gained 14% and set up again, now resting 1% past a pivot out of a six month long consolidation. In the interim HOS reported earnings, beating on both earnings and revenues, 0.31 vs 0.24, and $133.2M vs. $128.4M. Analysts forecast FY '13 EPS +81%, and FY '14 +94%.


FMC Technologies (FTI) released this past Tuesday AMC and missed earnings 0.50 vs. 0.56 but stated they expected increasing Subsea Technologies revenue and margins and continued solid performance in international surface wellhead. FTI gapped higher on the news, and is under heavy accumulation with an "A-" accumulation/distribution rating, a 50 day up/down volume ratio of 1.9, and a 25 day ratio of 2.4. FTI is 3% past its pivot out of a cup shaped base.


Diamond Offshore (DO) is 2% past its pivot out of a 17 week flat base, and is on the cusp of breaking into an almost 2 year new high. Analysts project FY '14 EPS +63%. DO is seeing accumulation with a 50 day up/down volume ratio of 1.2, and a 25 day ratio of 1.5.


Key Energy Services (KEG) is under heavy accumulation with an "A-" accumulation/distribution rating, a 50 day up/down volume ratio of 1.7, and a 25 day ratio of 2.1. KEG is a potential buy above 9.57, especially if we get some consolidation around that level.
 

McDermott (MDR) is scheduled to announce earnings Monday 2/25, the consensus analyst EPS is 0.23, with a range 0.20 - 0.27. MDR could be a purchase after the announcement if they deliver a solid beat, and is worth watching in the interim for unusual price/volume action.


Chart Industries (GTLS) is scheduled to announce earnings Thursday 2/28, the consensus analyst EPS is 0.76, with a range 0.73 - 0.79. GTLS could also be a purchase after the announcement if they deliver a solid beat, and is worth watching in the interim for unusual price/volume action.


The bulls seem to have gained the upper hand with Carbo Ceramics (CRR):
 

Pioneer Energy Services (PES) bolted higher on Thursday after announcing fourth quarter performance and beating on both earnings and revenues, 0.06 vs. -0.03, and $227.9M vs. $224.8M. PES is 3% past its pivot out of a cup shaped base, and as the weekly chart below demonstrates has just broken through a 1.5 year long descending trendline. As the data in the side panel of the chart below demonstrates, PES is a lower quality stock compared to its peers, however the strength of its industry group combined with its recent earnings beat suggests it could move higher from here.


Housing: Housing and construction had yet another strong week as the Philadelphia Housing Index gained 2.7%, and the sector enjoys 5 groups ranked in the top 32 overall.

DR Horton (DHI) announced earnings 1/29/13 beating on both earnings and revenues. Net sales orders for the first quarter increased 39% and the sales order backlog of homes increased  62% from the year-ago quarter. DHI gained 11.8% on the news, but has since traded within the 5% by zone out of a 17 week consolidation. Analysts forecast FY '13 EPS +51%, FY '14 +45%.
 


Electronics: The Elec-Misc Products group (G3662) and Electronic-Parts group (G3680) both rank in the top 50 of the trailing 2, 3, and 13 week price performance lists, yet still have MarketSmith industry group ranks of 107 and 115 respectively. 

Anixter International (AXE) has seen heavy volume for the past 6 weeks as it constructed the right side of its base, since January 1 average daily volume has almost doubled. AXE enjoys an "A" sponsorship rating, and from a quick look at the chart it's obvious these "A" rated institutional investors are establishing or reestablishing positions. AXE has developed a cup & handle pattern with a 71.43 pivot point.   





Follow up: Jazz Pharmaceuticals (JAZZ) was highlighted two weeks ago, and on Friday tried to break out of its cup & handle before ultimately failing. JAZZ is scheduled to report earnings Tuesday, 2/26/13 AMC. JAZZ has a "B+" accumulation distribution ratio, and the 50 day up/down volume ratio has improved to 1.2, and the 25 day ratio is now 1.5. JAZZ trades at 13x earnings, with FY '12 EPS forecast +34%, and FY '13 +21%.


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