Sunday, June 2, 2013

Sector & Group Rotation Notes – 6/2/13



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
1.2%
0.8%
5.2%
8.9%
13.8%
26.9%
Cboe Technology Index
1.6%
1.2%
0.8%
6.8%
4.7%
1.8%
Philadelphia Semiconductor Index
1.5%
-0.4%
0.6%
6.5%
10.2%
25.2%
Nasdaq Composite
-0.1%
-1.2%
0.6%
5.4%
9.0%
14.8%
Russell 2000
0.0%
-1.2%
0.9%
5.2%
7.6%
19.7%
Russell 1000 Energy Index
-1.4%
-1.9%
0.0%
3.6%
3.2%
11.7%
SP 500
-1.1%
-2.2%
-0.2%
3.1%
7.4%
15.2%
Pboe Oil Service Index
-2.2%
-4.0%
-2.3%
3.1%
5.0%
16.1%
Dow Jones Transportation Index
-1.6%
-4.0%
-1.3%
2.8%
5.1%
22.9%
DJIA
-1.2%
-1.6%
0.0%
2.7%
7.3%
16.0%
Philadelphia Housing Index
-3.0%
-5.3%
-3.4%
1.9%
8.2%
18.4%
Philadelphia Gold/Silver Index
6.7%
10.1%
-1.1%
0.9%
-19.5%
-37.0%
Philadelphia Utility Index
-3.4%
-6.7%
-6.1%
-9.0%
0.2%
6.1%

Last week the market picked up 2 more distribution days on the Nasdaq, and 3 on the S&P 500, giving each index 4 and 5 distribution days respectively over the trailing 2 week period. For the week the DJIA led the major indexes in decline with a 1.2% loss, followed by the S&P 500 giving back 1.1%. The more speculative indexes, however, were flat with the Nasdaq giving back a microscopic -0.1%, and the Russell 2000 finishing essentially flat.

One publication believes the elevated distribution day count has resulted in an "uptrend under pressure".  While normally higher distribution day counts are indicative of a weakening market, Sector Trend's analysis suggests a more accurate description of what we are seeing is a market under rotation. Normally with an elevated distribution day count you see a rotation into defensive names; what we are seeing here is a rotation from yield to growth, with a preference for tech. This is a positive for the market going forward, not a negative.

Note in the table above the weekly performance of the Cboe Technology Index +1.6%, the Philadelphia Semiconductor Index +1.5%, supported by banking with the KBW Large Cap Bank Index +1.2%, while the Utility index fell 3.4%. Those performances do not reflect a market on the cusp of a pullback.

Neither does last week's industry group performance. 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. Tech groups outperformed by a wide margin last week, while defensively oriented groups struggled. If the market were going into correction, one would not expect to see tech groups leading in a week with two distribution days.

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
6
5
4
3
# in the bottom 50 groups (out of 197)
9
4
8
2
10
13

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
16
14
9
15
4
6
# in the bottom 50 groups (out of 197)
1
4
3
5
8
5

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
4
5
5
5
8
7
# in the bottom 50 groups (out of 197)
12
13
10
15
6
8

The move from yield to growth is further demonstrated in the SPDR sector ETF data table below, sorted high to low based on one week price performance. The top six yielding ETFs are highlighted in yellow, and the bottom six price performers in red; note the almost perfect correlation between the two. The top eight performers are highlighted in green.

Symbol
Name
Yield
1 Week Gain
2 Week Gain
3   Week Gain
5 Week Gain
XSD
Spdr S&P Semiconductor
0.6
3.0%
1.1%
2.7%
12.6%
KBE
Spdr S&P Bank Etf
1.9
1.1%
0.1%
3.7%
7.8%
XBI
Spdr S&P Biotech Etf
0.2
0.8%
0.9%
3.7%
4.6%
KIE
Spdr S&P Insurance Etf
1.9
0.6%
-1.5%
-0.5%
2.9%
XLF
Spdr Financial
1.5
0.6%
-0.6%
3.1%
6.8%
KRE
Spdr S&P Regional Bank
1.7
0.4%
-0.5%
2.6%
6.5%
XRT
Spdr S&P Retail Etf
1.3
0.0%
-0.2%
1.5%
6.3%
XLK
Spdr Technology
1.7
-0.1%
-1.7%
0.2%
5.4%
XLI
Spdr Industrial
2.0
-0.4%
-1.4%
0.8%
5.6%
XME
Spdr S&P Metals & Mining
1.6
-0.4%
1.0%
-2.5%
4.2%
XLB
Spdr Materials
2.2
-0.7%
-2.3%
-0.7%
3.6%
XPH
Spdr S&P Pharmaceuticals
1.5
-0.9%
0.2%
2.5%
5.5%
XOP
Spdr S&P Oil & Gas Expl
1.2
-1.1%
-1.3%
1.4%
6.2%
XLY
Spdr Consumer Discretnry
1.4
-1.2%
-2.5%
-1.2%
3.4%
XLE
Spdr Energy
1.7
-1.5%
-2.0%
0.3%
4.3%
PSK
Spdr Wells Fargo Pfd Stk
6.3
-1.6%
-1.7%
-2.3%
-1.0%
XES
Spdr S&P Oil & Gas Equip
0.7
-1.8%
-3.2%
-1.5%
5.9%
XLV
Spdr Health Care
1.7
-2.0%
-2.0%
-0.1%
1.2%
XHB
Spdr S&P Homebuilders
0.8
-2.6%
-4.7%
-3.2%
1.3%
XLU
Spdr Utilities
3.9
-3.0%
-6.5%
-5.4%
-8.1%
XLP
Spdr Consumer Staples
2.7
-4.0%
-4.5%
-2.7%
-2.1%
RWX
Spdr Dj Intl Real Est
6.5
-4.5%
-9.9%
-10.3%
-9.2%
RWO
Spdr Dj Global Real Est
3.8
-4.9%
-9.1%
-8.6%
-6.6%
RWR
Spdr Dj Reit
2.8
-5.1%
-8.4%
-6.8%
-4.1%

The blog's market outlook remains the same as last week, "while the market may enter a trading range and/or see increased volatility, a serious pullback is not imminent." That said, income focused sectors of the market may yet have more downside in front of them.
 
Industry Group Performance:

Tech: The following 16 charts are pulled from the technology super sector referenced in the industry group performance table above.

Bazaarvoice (BV) offers a Software as a Service (SaaS) product allowing retailers and brands to obtain and use shopper-generated reviews. Their client list is extensive, including companies such as Best Buy, Dell, Adidas, CarMax, Costco, Kohls and numerous others. BV is 63% off its 52 week high, but has built a bottom over the past 5 months, and is now seeing accumulation.  The accumulation/distribution rating is "B+", the 50 day up/down volume ratio is a modest 1.0, but the 25 day ratio is a very strong 3.4. Sales have increased +63% > +61% > +54% > +55% over the trailing 4 quarters. Buy point is a move over 8.06 with volume.



Xilinx (XLNX) is 3% past its pivot out of a 12 week flat base. Accumulation/distribution rating of "A-",  50 day up/down volume ratio of 1.4, but a 25 day ratio of 2.7. ROE 17%.


Invensense (INVN) is a fabless semiconductor company seeing accumulation. The accumulation/distribution rating is a "B+",  50 day up/down volume ratio is 1.5 and the 25 day ratio is 2.5. Institutional sponsorship has increased 172 > 188 > 194 > 220 over the past 4 quarters, and analysts forecast FY '13 EPS +20%, FY '14 +26%. ROE 30%. INVN has a 13.13 pivot out of a 15 week cup & handle base.


Magnachip Semiconductor (MX) is 1% past an 18.25 pivot out of a 13 week consolidation.  MX is seeing accumulation with an accumulation/distribution rating of "B",  50 day up/down volume ratio of 1.4 and a 25 day ratio of 2.2. ROE 35%.


Yandex (YNDX) has fallen back inside the 5% buy zone of an oddly shaped cup base. Accumulation/distribution rating of "A+",  50 day up/down volume ratio of 1.3, but a 25 day ratio of 1.9. Institutional sponsorship increases of 245 > 273 > 303 > 365 over the last 4 quarters. ROE 27%. Analysts forecast FY '13 EPS +31%, FY '14 +26%.


Chipmos Technologies (IMOS) is up about 75% over the past 2 1/2 months, and as you might expect after such a run shows monster accumulation: accumulation/distribution rating of "A+",  50 day up/down volume ratio of 2.9, and a 25 day ratio of 3.1. IMOS trades at 13x earnings, and analysts forecast FY '13 EPS +107%, FY '14 +26% (2.24); giving IMOS a forward PE of ~ 8 when using FY '14 estimates. IMOS has just completed a 3 weeks tight formation on the weekly chart:


Nxstage Medical (NXTM) is a medical device company whose primary product, the NxStage System One, is a portable dialysis machine that can be used by lay people at home. NXTM is 18% off its 52 week high, and is almost 50% off its all time high, but has seen strong price gains in heavy volume since announcing 1st quarter results May 2.  NXTM Looks like its approaching resistance at ~14.75 area, but it's worth keeping on your watch list to see if it can consolidate before making a move higher.


Electronics For Imaging (EFII) broke out of the volatility squeeze shown in last week's blog, gaining 3.6% on the week. EFII still looks good here, 1% past its 27.65 pivot out of a 5 week flat base. Accumulation/distribution rating of "A-",  50 day up/down volume ratio of 1.5 and a 25 day ratio of 1.6.


Infoblox (BLOX) was featured in the 4/28 blog and has since gained 8.6% and is 6% past it's pivot (but not without a little whipsaw!). Another distribution day or two next week might pull it back into the 5% buy zone. 
  

Nxp Semiconductors (NXPI) was featured in last week's blog post, and picked up 4% on the week. NXPI is seeing very strong accumulation with a "B+" accumulation/distribution  rating, a 50 day up/down volume ratio of 1.5, and a 25 day ratio of 1.9. 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 fell 1% below its pivot on Friday after breaking out on Thursday.


Tangoe Inc. (TNGO) was a hot stock before collapsing last August. But time heals all wounds, and TNGO looks poised to move higher  out of a 15 week cup & handle base. TNGO is seeing very strong accumulation with a "A-" accumulation/distribution  rating, a 50 day up/down volume ratio of 2.0, and a 25 day ratio of 3.1. Analysts forecast FY ’13 EPS +38%, FY ’14 +25%. TNGO trades at 27x trailing earnings, and has 8 consecutive quarters of +50% EPS growth, and +30% sales growth. TNGO has a 15.24 pivot.
   


Silicon Graphics (SGI) has a "B" accumulation/distribution  rating, a 50 day up/down volume ratio of 1.2, and a 25 day ratio of 2.1. Institutional sponsorship has increased over the past quarter from 170 to 206 funds. Analysts forecast FY '13 EPS +167%, and FY '14 +225%. SGI broke out of a cup & handle base on Friday, and soared 5% past the pivot before falling back through the course of the day to finish +2.4%, and 1% past the pivot, volume was nearly 3x average.


Mako Surgical (MAKO) is another fallen star from early 2012 that has put in a solid bottom and is starting to see accumulation. Although MAKO is ~ 73% off its 2012 high, it has an "A-" accumulation/distribution  rating, a 50 day up/down volume ratio of 1.7, and a 25 day ratio of 2.3. MAKO looks like a buy above 12.50, with a secondary but point at 13.45.


Atmel (ATML) broke higher out of a 14 week consolidation on Thursday, gaining 6.2% in volume 43% above average. ATML is 5% past its buy point, but a little more weakness next week could pull it closer in. Accumulation/distribution rating of "B-",  50 day up/down volume ratio of 1.0 but a 25 day ratio of 1.5. 


Jive Software (JIVE) makes specialized cloud based social networks for business applications. JIVE has formed a first stage cup shaped base, with strong accumulation evident in the right side of the cup. Accumulation/distribution rating of "B+",  50 day up/down volume ratio of 1.1 but a 25 day ratio of 2.1.


Checkpoint Software (CHKP) is showing accumulation with an accumulation/distribution rating of "B+",  50 day up/down volume ratio of only 1.0, but a 25 day ratio of 2.7. ROE 21%. CHKP has a 51.61 pivot out of a cup & handle base.


The following names have various flaws but are worthy of having on a watch list to see if the charts become more constructive: TER, LSI, PWRD, OPEN, SAPE, MR, SWKS, GA, NXTM, IDTI, SPIL, HIMX, CODE, LOGM, SPLK, IACI, MPWR, ENTG, MDRX, XXIA, SINA.

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