Sunday, March 31, 2013

Sector & Group Rotation Notes – 3/31/13



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 Utility Index
2.3%
2.4%
3.8%
5.9%
13.3%
6.3%
Philadelphia Housing Index
-0.6%
0.3%
0.7%
5.6%
14.6%
21.5%
Dow Jones Transportation Index
1.2%
-0.3%
1.8%
5.2%
19.8%
27.9%
DJIA
0.5%
0.4%
1.3%
4.1%
12.7%
8.5%
Russell 2000
0.6%
-0.1%
1.0%
3.9%
14.4%
13.6%
SP 500
0.8%
0.5%
1.2%
3.6%
11.9%
8.9%
Nasdaq Composite
0.7%
0.6%
0.7%
3.3%
10.4%
4.9%
KBW Large Cap Bank Index
-0.6%
-2.2%
-0.5%
3.3%
11.2%
13.5%
Philadelphia Semiconductor Index
1.5%
0.6%
0.3%
2.7%
15.9%
14.2%
Cboe Technology Index
-0.4%
0.2%
1.2%
2.5%
5.6%
-5.2%
Russell 1000 Energy Index
0.7%
-0.4%
0.8%
1.9%
12.2%
6.4%
Pboe Oil Service Index
2.5%
-1.6%
0.3%
-0.1%
14.4%
9.6%
Philadelphia Gold/Silver Index
-0.9%
1.0%
1.8%
-0.4%
-15.5%
-28.9%

The markets moved higher last week in modest volume as the S&P 500 led the broad based indices with a 0.8% gain. Housing, large cap banks and technology all faltered while utilities gained 2.3%. The Pboe Oil Service Index bounced back a little from the previous weeks 4.1% loss with a 2.5% gain. The S&P 500 picked up a distribution day on Monday giving NYSE and Nasdaq stocks 4 distribution days each over the trailing 4 weeks.

Economic data continued to come in mostly positive. The Dallas Fed manufacturing survey came in at 7.4 versus an expectation of 3.4, and even exceeded the high end of the consensus range. Durable goods orders read 5.7% versus an expectation of 3.5%, although this was largely driven by transportation as Boeing experienced a rebound in orders. GDP was +0.4 and Chicago PMI 52.4, both missing consensus expectations slightly but none the less still indicating modest expansion.

The S&P Case-Shiller HPI, an average of home price appreciation over 20 cities, showed a solid 1% M/M increase, and an impressive 8.2% Y/Y gain. Friday’s personal income and outlays data was another positive indicating a 1.1% M/M gain in income, and a 2.6% increase Y/Y. Consumer spending increased 0.7% M/M and 3.3 Y/Y.

Consumer confidence and consumer sentiment reports were contradictory with the former missing expectations significantly (59.7 vs. 67.5) while the latter exceeded by a similar margin (78.6 vs. 72.5). However, the consumer sentiment report correlates with consumer spending to a higher degree than consumer confidence. Jobless claims data released Thursday missed estimates 357K vs. 340K, but the 4 week average is still 10K below February’s.

Europe raised its head again on Wednesday when Italian politician Pier Luigi Bersani, the head of a center-left alliance said only an “insane person” would want to govern Italy and that the country is a “mess.” No doubt there’s more drama to come…

The market is approaching record highs and the advance decline line is still healthy, but there are reasons for caution here. As the table below demonstrates defensive groups are starting to outperform, and have outperformed 3 out of the 4 trailing weeks when looking at one week time frames. The S&P 500 has started to outperform the Russell 2000, the index which has led the rally, and leads the Nasdaq over almost every time frame (the market tends to underperform when the S&P 500 leads). Volume is weakening and utilities now lead over the trailing 5 weeks with a 5.9% gain.



 

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)
5
5
4
4
7
8
# in the bottom 50 groups (out of 197)
13
16
10
12
11
9

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
9
4
3
4
7
2
# in the bottom 50 groups (out of 197)
5
10
11
9
10
14

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
11
10
14
8
9
8
# in the bottom 50 groups (out of 197)
5
2
2
3
3
7

Defensive groups led last week and are now outperforming over the 1, 2, 3 and 5 week time frames.


Industry Group Performance:

Energy: Energy related groups muddled through the week with 3 finishing in the top 50, and 3 in the bottom 50. It appears more time to base & consolidate is needed.

Apparel: Last week’s blog post pointed out the improving performance of the Apparel-Shoes & Rel Mfg group (G3141) and that continued this past week with a 1.1% gain. The group now ranks #27 on the trailing 5 week price performance list with a 7.6% gain. Industry group rank improved +11 to #128. Continue to watch SKX for a Bollinger Band squeeze.

Business Services: A number of the business services related industry groups are beginning to show gathering price momentum and concomitant MarketSmith industry group rank improvement. The participating groups are shown in the table below:



Price
Ind. Group
Industry Group
Symb.
3 Week Gain
3 Week Rank
Rank
3 Week Rank ∆
Comml Svcs-Consulting
G8242
4.1%
21
49
+48
Comml Svcs-Market Rsrch
G8244
1.2%
105
111
+39
Bldg-Maintenance & Svc
G7340
4.1%
23
70
+37
Comml Svcs-Outsourcing
G1001
3.4%
41
68
+18
Comml Svcs-Document Mgmt
G2751
2.2%
73
53
+5

Corrections Corp. of America (CXW) is under heavy accumulation with a 50 day u[/down volume ratio of 2.1 and a 25 day ratio of 2.9. CXW has a 39.31 pivot out of a 7 week flat base. RS 79, EPS 80, dividend yield 5.4%.


Towers Watson (TW) is also under accumulation with an “A-“ Accumulation/Distribution rating and a 50 day up/down volume ratio of 2.0. TW is 2% past its pivot out of a cup and handle base, but is also extended above its upper Bollinger Band. Look for it to pull back or consolidate briefly before considering a position.


Servicenow Inc. (NOW) is under accumulation with a “B+” Accumulation/Distribution rating and a 50 day up/down volume ratio of 1.8. Institutional sponsorship increased over 50% in the last quarter from 198 funds to 318. Quarterly sales have increased +80% for the last 8 consecutive quarters. NOW has a 38.22 pivot out of a 25 week cup & handle base.


Robert Half (RHI) was highlighted in the December 2 blog post with a 28.26 buy point. RHI has since gained 31.7% and broke out of a 5 week flat base this past Thursday.


Food & Beverage: Defensively oriented food and beverage related groups are showing very strong price momentum with 6 groups (out of 7 total) ranking in the top 50 of the trailing 5 week price performance list. Over the same 5 week period these same 6 groups are showing MarketSmith industry group rank improvement from a low of +20 to a high of +80, yet only two groups are ranked in the top 50. The only group not participating is the Beverages-Non-Alcoholic group (G2086).

Archer Daniels Midland (ADM) broke out of 43 week cup & handle base on Thursday in volume 22% above average. ADM is 2% past its pivot and its dividend yields 2.3%.


Ingredion Inc. (INGR) is under accumulation with a “B-” Accumulation/Distribution rating and a 50 day up/down volume ratio of 1.1, although its 25 day ratio is much stronger at 1.7. Institutional sponsorship has been increasing steadily over the last 3 quarters 543 > 597 > 655. INGR is 3% past its pivot out of a 9 week cup shaped base.


Hain Celestial (HAIN) has a lousy “D+” Accumulation/Distribution rating yet has seen institutional sponsorship increase 344 > 384 > 420 > 438 over the last 4 quarters. The 50 day up down volume ratio is noncommittal at 1.0, but the 25 day ratio is 1.2. HAIN has enjoyed 5 consecutive quarters of +20% sales growth and +30% EPS growth. Analysts project FY ’13 EPS +33%, FY ’14 +17%. HAIN looks like a buy on a break above resistance at ~ 62.60.


Machinery: Machinery related groups are weakening. Four weeks ago there were 4 machinery related groups in the top 50 of MarketSmith’s industry group rankings, now only 1 remains. 4 of the 6 related groups finished in the bottom 50 of the trailing 1 week price performance list, and 5 of 6 are in the bottom half of the trailing 5 week price performance list. It appears investors are rotating out of these groups into other areas.

Follow Up: Two weeks ago in this space the Sector Trends blog theorized that LNKD would begin to consolidate after the stock reacted poorly when Goldman Sachs increased its price target. Another data point in support of this view is the weakness in the Internet-Content group (G3334). The group is ranked #173 on the trailing 3 week price performance list with a 2% loss and has dropped -61 in MarketSmith’s industry group rankings to #107 overall.


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