Sunday, April 7, 2013

Sector & Group Rotation Notes – 4/7/13



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.

Index
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Philadelphia Utility Index
1.3%
3.6%
3.7%
6.5%
10.5%
6.9%
DJIA
-0.1%
0.4%
0.4%
3.4%
8.4%
7.0%
SP 500
-1.0%
-0.2%
-0.5%
2.3%
5.9%
6.3%
KBW Large Cap Bank Index
-2.0%
-2.6%
-4.1%
1.8%
2.6%
7.3%
Philadelphia Housing Index
-3.8%
-4.4%
-3.6%
1.1%
3.2%
11.2%
Nasdaq Composite
-1.9%
-1.3%
-1.4%
1.1%
3.3%
2.2%
Russell 2000
-3.0%
-2.4%
-3.1%
0.9%
5.0%
9.5%
Dow Jones Transportation Index
-3.5%
-2.3%
-3.8%
0.9%
9.1%
19.6%
Cboe Technology Index
-3.1%
-3.5%
-2.9%
0.3%
-1.4%
-7.5%
Russell 1000 Energy Index
-2.4%
-1.7%
-2.7%
-0.2%
3.8%
3.7%
Pboe Oil Service Index
-2.9%
-0.5%
-4.5%
-1.3%
2.5%
8.3%
Philadelphia Semiconductor Index
-4.1%
-2.6%
-3.5%
-1.4%
5.3%
9.3%
Philadelphia Gold/Silver Index
-7.1%
-7.9%
-6.2%
-5.4%
-22.4%
-34.1%

Both the S&P 500 and DJIA hit all time closing highs this week, and finished the week less than 1.2% off those highs. Despite this performance the market is a mess, sabotaged by poor employment data. Wednesday's ADP employment report missed badly, followed by Friday's horrid payroll data; the markets picked up a distribution day with each report. Other economic data for the week was poor as well: both the ISM manufacturing Index and ISM non-manufacturing index missed consensus expectations.

But on the other hand, as last week's blog post noted there were numerous warning signs of deteriorating market health: defensive rotation, declining volume, strength in utilities and weakness in the Russell 2000; so perhaps the data was just an excuse for a tired market looking to sell.

The table below lists each index's most recent intra-day high over the trailing 6 weeks and its performance since. The data demonstrates how the S&P 500 and DJIA are masking weakness in the broader market.

Index
Most Recent High
Date
Gain/Loss Since
Philadelphia Utility Index
518.84
4/5/13
-0.1%
SP 500
1553.28
4/2/13
-1.1%
DJIA
14565.25
4/2/13
-1.2%
Nasdaq Composite
3203.86
3/28/13
-2.0%
Russell 1000 Energy Index
849.02
3/15/13
-3.1%
Russell 2000
923.28
3/15/13
-3.2%
Cboe Technology Index
982.15
3/25/13
-4.2%
KBW Large Cap Bank Index
55.14
3/15/13
-4.3%
Dow Jones Transportation Index
6037.36
3/18/13
-4.3%
Pboe Oil Service Index
238.33
3/15/13
-5.0%
Philadelphia Semiconductor Index
418.93
3/14/13
-5.5%
Philadelphia Housing Index
184.57
3/20/13
-6.8%
Philadelphia Gold/Silver Index
126.13
3/22/13
-8.8%

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)
1
2
2
2
3
7
# in the bottom 50 groups (out of 197)
13
15
16
15
15
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)
0
0
3
2
4
1
# in the bottom 50 groups (out of 197)
13
11
13
13
10
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)
14
17
18
16
17
11
# in the bottom 50 groups (out of 197)
2
1
2
1
1
6

It probably goes without saying that the data listed in the table above does not reflect a healthy market.

Industry Group Performance:

Energy: Energy groups took it on the chin last week getting hammered across the board. 9 of the 13 energy related groups finished in the bottom half of the 1 week price performance list; and all 13 groups posted losses for the week with the average loss coming in at -3.3%.

The March 17 blog post speculated that "groups involved in the exploration and production of energy may begin to outperform, and groups that support exploration and production (machinery, field services, etc.) should continue to perform well. Refiners may have already experienced the bulk of their run." This obviously hasn't occurred, and doesn't appear likely to in the near future (although refiners gave back 5.2% last week).

Food: Most of the food related groups continue to perform well with 6 of 7 ranked in the top 55 of the trailing 3 week price performance list. Stocks highlighted last week (INGR, HAIN, and ADM) continue to look attractive. The Food-Dairy Products group (G2020) fell 7.2% for the week and should be avoided.
 
Apparel: Two weeks ago the blog noted the improving performance in the Apparel-Shoes & Rel Mfg industry group (G3141) writing that the group "has been a laggard but ranks #37 on the trailing 3 week price performance list with a 5% gain and over the same time period has jumped +33 in MarketSmith’s industry group rankings to #139."

The group has continued to perform well, and ranks #21 and #22 on the trailing 1 and 2 week price performance lists with 0.1% and 1.1% gains respectively. Over the past two weeks the group has jumped +58 in MarketSmith's industry group ranking from #139 to #81. This performance combined with the deterioration seen in most other groups has combined to improve its longer term price performance. The group now ranks #17 over 5 weeks, +6.2%, #29 over 13 weeks, +11.5%, and #38 over 26 weeks +17.4%. It seems likely this group is headed for a 40+ MarketSmith industry group rank in the near future.

The Apparel-Clothing Mfg group (G2300) has been an underperformer with an industry group rank of #162 and a relative strength of 19. However, the group actually gained 0.2% both Wednesday and Friday of last week as the market was picking up distribution days, Wednesday's gain occurred in volume 25% above average. This display of relative strength during the midst of very poor market performance suggests the group could begin to see improved performance.

Michael Kors (KORS) has a history of shooting itself in the foot with secondary offers, most recently in mid February right after a high volume breakout. Since then KORS has fallen back ~ 15%, the 50 day up/down volume ratio is 1.1, and the 25 day ratio is a below average 0.9. However, KORS actually showed small gains last week on both distribution days, and its EPS growth rate of 58% is almost double its PE of 33. KORS continues to attract outsized institutional sponsorship gains: 339 > 475 > 537 > 566 over the trailing 4 quarters. A week ago Morgan Stanley described a meeting with KORS management team as "upbeat" and indicated it viewed shares of KORS as undervalued, and Goldman indicated much the same 10 days prior. KORS looks like buy with a break of the descending trend line, especially if it comes in heavy volume.


Under Armour (UA) is working on the right side of what could be a cup shaped base, and is seeing improved relative strength. UA is worth putting on the watch list for a potential purchase after earnings 4/19/13.


Insurance: Insurance related groups are showing near term strength with all 5 insurance related groups ranking in the top 50 of the trailing 5 week price performance list. The S&P 500 has gained 2.3% over the trailing 5 weeks while these 5 groups average gain has been 4%. Over the same time period the Insurance-Acc & Health group (G6320) has jumped +91 in MarketSmith's industry group rankings to #67 overall and enjoys the highest ranking among the 5 groups.

ACE Limited (ACE) is trading in a tight 4 week channel, and the Bollinger Band's have started to tighten up - another week of trading in this range should generate a solid volatility squeeze. ACE is seeing accumulation with an accumulation/distribution rating of "B", a 50 day up/down volume ratio of 1.6, and a 25 day ratio of 1.5. ACE yields 2.2%.

 
First American Financial (FAF) is a spin off from the former First American Corporation which split its business in 2010 to form both FAF and CoreLogic (CLGX). FAF specializes in title insurance and specialty insurance products such as home warranties.

FAF is under accumulation with an accumulation/distribution rating of "B-", and although the 50 day up/down volume ratio is a weak 0.9 the 25 day ratio is 1.4, and FAF has seen institutional sponsorship increases of 323 > 376 > 422 > 439 over the trailing 4 quarters. FAF is breaking out of a volatility squeeze right here/right now, and looks like a buy at current levels.


Real Estate: Both the Finance-Property Reit group (G6730) and Real Estate Dvlpmt/Ops group (G6732) rank in the top 32 of the trailing 5 week price performance list with gains of 4.1% and 4.8%.

American Realty (ARCP) yields 6.1% and is seeing very heavy accumulation with a 50 day up/down volume ratio of 1.7 and a 25 day ratio of 2.0. On March 20 ARCP made an unsolicited offer for Cole Credit Property Trust III, followed by a revised offer March 28. Both have been rejected. On Friday  ARCP stated "There has been absolutely no constructive engagement on the part of CCPT III's special committee to understand, evaluate and compare our proposal to the related party internalization of Cole Holdings." As with all selections the reader needs to perform their own due diligence here, but ARCP looks attractive above 14.92.


Caplease (LSE) is a REIT that has relative strength hitting a new high even after completing a primary offer this past Thursday (evidently well received). LSE yields 4.9%.


ExtraSpace Storage (EXR) despite its poor accumulation/distribution rank of "E" is seeing some accumulation with a 50 day up/down volume ratio of 1.6. EXR has surprised 9 out of the last 10 EPS releases, and has seen several analysts revise sales estimates higher over the past 30 days. EXR yields 2.5%, and relative strength has turned higher. EXR is just past a 39.60 pivot out of an ascending triangle, although in below average volume.


The Ishares Cohen & Steers ETF (ICF) is seeing accumulation with an accumulation/distribution rating of "A-", a 50 day up/down volume ratio of 1.4, and a 25 day ratio of 1.6. ICF yields 2.8%.


Ishares Dow Jones Real Estate ETF (IYR) is also seeing very strong accumulation; accumulation/distribution rating of "A-", a 50 day up/down volume ratio of 1.6, and a 25 day ratio of 2.2. IYR yields 3.5% and is breaking out of a volatility squeeze.


Retail: Retail related industry groups are beginning to outperform over shorter time frames as demonstrated in the table below. Note how the trend improves over time from the 13 week period.

Out of 197 groups:
Time Period

1 week
2 weeks
3 weeks
5 weeks
13 weeks
# of groups in the top 50
8
7
7
7
6
# of groups in the bottom 50
0
3
3
4
7

The groups are also improving in MarketSmith's industry group rankings. 4 weeks ago there was 1 group ranked in the top 50, this week there are 4. Just this past week the Wholesale-Food group (G5040) jumped +20 to #24, Retail-Restaurants (G5812) jumped +31 to #35, and Retail-Drug Stores (G5912) jumped +35 to #57.

Gap Inc. (GPS) is seeing some very heavy accumulation with an accumulation/distribution rating of "B", a 50 day up/down volume ratio of 1.4, but a 25 day ratio of 2.9. GPS has a 36.87 pivot out of a cup & handle base.

 

No comments:

Post a Comment