Sunday, May 26, 2013

Sector & Group Rotation Notes – 5/26/13



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
-2.3%
-0.3%
2.3%
13.4%
12.1%
23.3%
KBW Large Cap Bank Index
-0.4%
4.0%
6.9%
11.0%
11.7%
23.8%
Philadelphia Semiconductor Index
-1.9%
-1.0%
2.3%
10.7%
8.6%
25.0%
Pboe Oil Service Index
-1.8%
-0.1%
1.4%
9.8%
5.5%
19.0%
Russell 1000 Energy Index
-0.6%
1.3%
2.0%
8.3%
4.2%
12.5%
Cboe Technology Index
-0.4%
-0.8%
-0.2%
8.2%
2.0%
1.5%
Nasdaq Composite
-1.1%
0.7%
2.4%
7.9%
9.4%
16.6%
Russell 2000
-1.2%
0.9%
3.1%
7.9%
7.4%
21.9%
SP 500
-1.1%
1.0%
2.2%
6.1%
8.9%
17.1%
Dow Jones Transportation Index
-2.3%
0.3%
2.8%
6.0%
7.6%
26.6%
DJIA
-0.3%
1.2%
2.2%
5.2%
9.3%
17.6%
Philadelphia Gold/Silver Index
3.2%
-7.3%
-6.6%
-2.2%
-26.2%
-42.3%
Philadelphia Utility Index
-3.5%
-2.9%
-5.5%
-5.3%
4.5%
13.8%

The markets saw distribution last week, with a stalling day on Tuesday followed by a solid reversal/distribution day Wednesday after the release of the FOMC minutes. News on Thursday that Chinese manufacturing had fallen to its lowest level in 7 months led to a gap down opening, followed by another on Friday; although on both days markets pushed back to close nearly flat. For the week the Russell 2000 lost 1.2%, the Nasdaq & S&P 500 1.1%, and the DJIA eased 0.3%.

In other economic data Wednesday’s existing homes sales report was positive, and Thursday’s new home sales beat expectations by 29K. New home sales data suggested a YOY price increase of ~ 15%. Jobless claims continue to fall, and both the PMI Manufacturing Index and Durable Goods Orders beat consensus expectations.

The table immediately below indicates there was very little, if any, defensive rotation last week; in fact the Philadelphia utility Index got clobbered falling 3.5%. This lack of defensive rotation, combined with the improved relative performance of commodity oriented/impacted groups, suggests that while the market may enter a trading range and/or see increased volatility, a serious pullback is not imminent.

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

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
7
8
7
12
4
5
# in the bottom 50 groups (out of 197)
11
11
9
5
13
8

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
8
8
6
4
8
7
# in the bottom 50 groups (out of 197)
6
6
9
14
1
4

Commodity oriented/impacted groups performance, especially from the energy sector, is beginning to improve. As noted above the performance of defensively oriented groups remains modest.

Industry Group Performance:

Energy: On Monday after the close the blog tweeted “Strong move in Energy sector today, 12 of 13 groups in top 30 of the daily price perf. list, numerous groups appear to be breaking out”. For the week 8 of the sector’s groups finished in the top 50 of the trailing 1 week price performance report, and 11 of 13 finished in the top half. Over the trailing five weeks the Pboe Oil Service Index has outperformed the S&P 500 by 61% (9.8% vs. 6.1%), and the broader Russell 1000 Energy Index has done so by 37% (8.3% vs. 6.1%).


Over the past 4 weeks the Energy-Alternative/Other group (G1318) has broken through a 3-year+ descending trendline in increasing volume. This group finished the week ranked #1 on the weekly price performance list with a 5.2% gain, and jumped +37 in MarketSmith’s industry group rankings to #15 overall.


 


The Oil&Gas-Field Services group (G1380) fell 1.4% last week, but ranks #15 on the trailing 5 week price performance list with a 14.7% gain. Over the same 5 week period the groups MarketSmith industry group rank has improved +57 from #84 to #27 overall.
 

The Oil&Gas-Refining/Mktg group (G2900) gave back 0.6% for the week but did so in declining volume.


The Oil&Gas-U S Expl&Prod group (G1310) is fighting to close above resistance.


The Oil&Gas-Integrated group (G1317), the market cap behemoth of the sector, lags with a MarketSmith rank of #177 but is less than 2% off a new high.


The Energy-Coal group (G1319) appears to have put in a bottom and is consolidating. The group finished #4 on the weekly price performance list with a 3.2% gain, and ranks #38 on the 5 week list with a 11.8% gain. The up/down volume ratio is 1.4, tied with the Oil&Gas-Transport/Pipeline group (G4922) for the highest in the sector. 


Solar (G1320) looks to be going parabolic.



Sanchez Energy (SN) blew through resistance on Monday, gaining 7.5% on volume almost 3x greater than average. SN pulled back the balance of the week to close $0.01 above its 21.62 resistance line, and back inside its upper Bollinger band, setting up a nice flag pattern.  SN is under accumulation with a “B” accumulation/distribution rating, 50 day up/down volume ratio of 1.3, and a 25 day ratio of 2.1. FY ’13 EPS are forecast +539%, and FY ’14 +73% to $2.54 per share, giving SN a forward PE ratio of ~8.5 when using FY ’14 estimates.




Helix Energy Solutions (HLX) is seeing accumulation with a 50 day up/down volume ratio of 1.4, a 25 day ratio of 2.3, and institutional sponsorship has increased from 446 funds to 483 over the last quarter. Analysts forecast FY ’13 EPS +37%, and FY ’14 +58%. HLX has a 25.49 pivot out of a 13 week consolidation.


MRC Global (MRC) is a recent IPO from the Oil&Gas-Machinery/Equip group which is seeing accumulation. MRC has a “B” accumulation/distribution rating, the 50 day up/down volume ratio is 1.1, and the 25 day ratio is 1.8. Institutional sponsorship has increased 124 > 135 > 197 > 223 since coming public, and MRC has a ROE of 20%. Analysts forecast FY ’13 EPS +18%, and FY ’14 EPS +19%. MRC has a 33.11 pivot out of a cup shaped base.


Dril Quip (DRQ) is another stock from the Oil&Gas-Machinery/Equip group which is seeing accumulation. DRQ has an “A” accumulation/distribution rating, 50 day up/down volume ratio of 1.5, and a 25 day ratio of 1.8; and fund sponsorship has increased 430 > 463 > 470 > 481 over the last 4 quarters. Analysts forecast FY ’13 EPS +25%, and FY ’14 EPS +29%. DRQ is 3% past a 88.12 pivot. 
 

Dresser Rand (DRC) has an “A-” accumulation/distribution rating, a 50 day up/down volume ratio of 1.5, and a 25 day ratio of 3.3. Institutional sponsorship has increased 450 > 462 > 477 > 495 over the last 4 quarters. Analysts forecast FY ’13 EPS +40%, FY ’14 +29%, and DRC has an ROE of 18.2%. DRC is 3% past a 61.97 pivot out of a double bottom base.


Tesoro (TSO) is a constituent of the Oil&Gas-Refining/Mktg group. TSO has a “B-”  accumulation/distribution rank, 50 day up/down volume ratio of 1.2, but a 25 day ratio of 1.9. Institutional sponsorship has been growing by leaps, 701 > 791 > 827 > 899 over the last 4 quarters. TSO is 5% past a 58.52 pivot out of a cup & handle base.


Oasis Petroleum (OAS) is out of the Oil&Gas-US Expl&Prod group. OAS has a”B-” accumulation/distribution rating, a 50 day up/down volume ratio of 1.0, but a 25 day ratio of 1.8, and a ROE of 26%. Institutional sponsorship gains have been strong, increasing 363 > 387 > 437 > 481 over the last 4 quarters. Analysts forecast FY ’13 EPS +33%, and FY ’14 +29% OAS currently trades at 16 times earnings, and has a 39.78 pivot out of a 10 week consolidation.
 

Chesapeake Energy (CHK) may benefit from increasing natural gas prices and is seeing some very heavy short term accumulation. CHK has a “B+” accumulation/distribution rating, and while the 50 day up/down volume ratio is a modest 1.0, the 25 day ratio is extremely strong at 2.6. Analysts forecast FY ’13 EPS +144%, and FY ’14 +38%. CHK has a 22.97 pivot out of a cup shaped base, but aggressive traders might consider a position at current levels.


Cabot Oil & Gas (COG) has posted +30% sales & EPS growth for the past two quarters. COG is showing some accumulation with a “B+” accumulation/distribution rating and steady institutional sponsorship gains: 925 > 955 > 1016 > 1074 over the past 4 quarters. The up/down volume ratio is average however, with the 50 day at 1.0 and the 25 day at 1.1. Analysts forecast FY ’13 EPS +129%, FY ’14 +72%. COG is just $0.43 shy of a 71.39 pivot out of a 6 week flat base.




Watchlist: Here are a few other names for the watch list:

Electronics For Imaging (EFII) is showing strong short term accumulation, and appears ready to move higher out of a Bollinger Band volatility squeeze. EFII’s accumulation/distribution rating is “B+”, its 50 day up/down volume ratio is 1.3, but its 25 day ratio is a strong 2.1. Sponsorship has increased 256 > 279 > 291 over the past 3 quarters.


This TC2000 chart shows the Bollinger Band squeeze:


Jazz Pharmaceuticals (JAZZ) was featured in the March 10 blog post, and is finally moving past its pivot with some volume. JAZZ is seeing very strong accumulation with a “A-” accumulation/distribution rating, a 50 day up/down volume ratio of 1.5, and a 25 day ratio of 2.4. Institutional sponsorship has increased 373 > 410 > 413 > 448 over the past 4 quarters. JAZZ has a ROE of 44%, an EPS growth rate of 111%, and a trailing PE of 12. JAZZ is currently 6% past a 60.20 pivot and is outside its upper Bollinger Band, so look for it to pull back a little, or at least consolidate, before establishing or adding to a position.


Nxp Semiconductors (NXPI) is seeing very strong accumulation with a 50 day up/down volume ratio of 1.2, and a very strong 25 day ratio of 2.2. Institutional sponsorship has increased 202 > 284 > 309 > 410 over the past 4 quarters. Analysts forecast FY ’13 EPS +52%, FY ’14 +24%. NXPI trades at 12x earnings and has a 31.01 pivot out of a cup & handle base.


Hovnanian (HOV) is under strong short term accumulation. HOV has a “B+” accumulation/distribution rating, the 50 day up/down volume ratio is only 1.1, but the 25 day ratio is very strong at 2.3.

  


Aceto Corp (ACET) average daily trade is only 111K, but has an attractive chart for those comfortable holding a thinner name. Accumulation/distribution rating “B+”, 50 day up/down 1.1, 25 day 1.5. FY ’13 EPS forecast +35%, FY ’14 +14%, PE 14. ACET is 3% past its pivot out of a flat base.


On Assignment (ASGN) was featured in the blog numerous times last December, and has set up again. ASGN has a “B” accumulation/distribution rating, a 50 day up/down volume ratio of 1.2, and a 25 day ratio of 2.0. ASGN is 2% past a 26.09 pivot out of a consolidation. However, it’s a third stage base and institutional sponsorship has been stagnant the last 3 quarters, 299 > 298 > 300, so watch your stops.


Eagle Materials (EXP) is 4% past its pivot out of 2nd stage consolidation. EXP is seeing very strong accumulation with a 50 day up/down volume ratio of 1.7, and a very strong 25 day ratio of 4.2. Institutional sponsorship has increased 310 > 358 > 396 > 401 over the past 4 quarters. Analysts forecast FY ’13 EPS +79%, FY ’14 +52%.


Ocwen Financial (OCN) was pushed back 2% below its 42.07 pivot by last week’s market action. OCN is seeing strong accumulation with a 50 day up/down volume ratio of 1.4, and a very strong 25 day ratio of 3.3. Institutional sponsorship has increased 326 > 373 > 485 > 496 over the past 4 quarters. Analysts forecast FY ’13 EPS +237%, FY ’14 +21%.


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