Sunday, June 23, 2013

Sector & Group Rotation Notes – 6/23/13



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 1 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
KBW Large Cap Bank Index
0.0%
-2.3%
-2.4%
-1.6%
6.2%
17.3%
Pboe Oil Service Index
-0.8%
-2.6%
-1.0%
-4.9%
4.9%
13.6%
Philadelphia Semiconductor Index
-1.0%
-2.3%
-1.7%
-2.1%
7.2%
19.5%
Philadelphia Utility Index
-1.5%
-1.8%
-2.1%
-8.7%
-4.5%
3.1%
Russell 1000 Energy Index
-1.7%
-3.3%
-2.5%
-4.3%
-0.9%
7.2%
DJIA
-1.8%
-2.9%
-2.1%
-3.6%
2.0%
12.2%
Russell 2000
-1.8%
-2.4%
-2.1%
-3.3%
1.8%
13.7%
Nasdaq Composite
-1.9%
-3.2%
-2.9%
-4.1%
3.5%
11.1%
SP 500
-2.1%
-3.1%
-2.3%
-4.5%
2.3%
11.3%
Cboe Technology Index
-2.4%
-4.3%
-4.3%
-4.0%
-4.4%
-0.6%
Dow Jones Transportation Index
-3.2%
-3.7%
-2.9%
-6.7%
-1.1%
14.4%
Philadelphia Housing Index
-7.2%
-7.3%
-10.8%
-15.5%
-8.7%
3.4%
Philadelphia Gold/Silver Index
-10.9%
-13.5%
-14.8%
-6.2%
-33.3%
-43.0%

Last week the markets began with promising price action, gaining 1.6% for the week going into the 2 PM FOMC announcement on Wednesday. Needless to say market participants did not care for the message... Due to Monday's and Tuesday's gains the table above actually understates the extent of the selling; the S&P 500 lost 3.9% Wednesday & Thursday before picking up 0.3% on Friday.

For the last four weeks the Sector Trends market view has been a variation of "the markets could see additional volatility but a serious pullback is not imminent" and that wasn't too bad a call up until 2 PM Wednesday. But the violent reaction to Bernanke's comments most likely nullifies the "is not imminent" part of the equation. The Sector Trends blog avoids targets and predictions, but it wouldn't be unreasonable to expect the indexes to pull back further amidst choppy summer trade - and as the reader knows most stocks follow the market.

The other part of the blog's outlook has been the volatility is in part caused by a rotation from income to growth, and last week's action continues to support that view. For the week stocks with a dividend yield greater than 3% fell by an average of 3.3%, a decline 57% greater than the S&P 500's; while at the same time stocks with RS > 80 and analyst FY '14 EPS projections > +20% fell only 1.56%, 26% less than the S&P 500.

Several times over the past few weeks the blog has mentioned the rotation into growth will benefit tech stocks, and there was more evidence this week supporting that view. One broad indicator is the performance of the Cboe Technology Index. Although the index performance looks only average in the table above, it's important to remember the index weights Apple (AAPL) 27%. The index is down only 2.7% over the trailing 5 weeks x-Apple, a performance which trails only the banks and semis.

There will be more specific discussion of tech groups further below, but this table shows how they outperformed last week with 12 groups ranking in the top 50 of the trailing 1 week price performance list while only 2 were in the bottom 50. The tables 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)
4
4
2
4
3
5
# in the bottom 50 groups (out of 197)
8
10
12
11
13
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)
12
6
8
8
5
4
# in the bottom 50 groups (out of 197)
2
6
4
3
7
7

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


Industry Group Performance:

Software: the March 3rd blog post pointed out the emerging performance of software related groups writing "Software related groups have been substandard ... however, these group's performance may be starting to turn as... 5 groups rank in the top 42 of the trailing 3 week price performance list."

At the time there wasn't a single software group ranked in the top 100 of MarketSmith's industry group rankings; today 7 of 10 are ranked in the top 100, and 2 are ranked in the top 10. This strong performance continued again last week as 8 of the groups finished in the top 100 of the trailing 1 week price performance list, and 5 of those ranked in the top 40.

Servicesource Intl (SREV) was first highlighted here two weeks ago and has since gained 10%. SREV spent last week consolidating in tight trade, and may do so for a few more days. Buy point on a break higher through 9.31.



Verint Systems (VRNT) was also featured here 2 weeks ago with a 35.38 buy point. VRNT gained 2.7% on Friday in volume more than 3x greater than average. All of the gain occurred in the last 15 minutes of trading where 274K shares traded hands, 22% of the days total. VRNT is under very heavy accumulation with an A/D rating of "A-", a 50 day up/down volume ratio of 1.6, and acts like a stock that wants to see higher prices.


JIVE Software (JIVE) is yet another repeat, first gaining mention three weeks ago in the June 2nd blog post. Like VRNT, JIVE saw massive volume in the last 15 minutes of Fridays trading when 404K shares traded hands, 27% of the day's total, and the price jumped 2.7%. 


Tango Inc. (TNGO) was also first featured 3 weeks ago, and in the interim had a tremendous breakout June 10th, gaining 6.3% on volume 57% above average. Since then TNGO has fallen back, and Friday's low was 6.2% below the pivot. But TNGO rallied and closed near the top of its daily range; watch for another break higher through the 15.24 pivot.
 


Bazaarvoice (BV) was featured in the 6/2 blog post and gained 28% the following week. A/D rating "A+", 50 day up/down volume ratio 2.2. BV could be worth a look if it breaks out of the short descending channel shown on the weekly chart below.
 


Demandware (DWRE) had previously eluded the attention of the blog due to its low average daily volume. That changed over the past week as average daily volume ticked up to 271K. DWRE is extended here, but additional market weakness might provide for a lower risk entry. DWRE is seeing accumulation with an "A-" A/D rating and a 50 day up/down volume ratio of 1.5. 




Networking: The Computer-Networking group (G3574) is ranked #173 in MarketSmith's industry group rankings, and #184 on the trailing 26 week price performance list with a 4.3% loss. That's now beginning to change as the group is ranked #31 on the trailing 5 week price performance list with a 0.5% gain, and ranked #25 on the trailing 1 week price performance list with a 0.2% gain.

I X I A (XXIA) is over 20% off its 52 week high and yet is under strong accumulation. XXIA enjoys and A/D rating of "A", the 50 day up/down volume ratio of 1.2, a 25 day ratio of 1.73, and XXIA is seeing strong sponsorship increases with funds taking positions increasing 223 > 255 > 281 > 302 over the past 4 quarters. XXIA gained 11.2% last week after breaking through the 16.65 buy point of  the ascending triangle in the chart below. While XXIA has not been featured here previously, the blog did post the chart as it was breaking out Tuesday morning on StockTwits and Twitter.



Ruckus Wireless (RKUS) is a recent IPO that got off to a hot start gaining 76% in just a little less than 3 months. But after announcing disappointing earnings results February 13, RKUS fell from 26.44 to a low of 10.24 on June 13th. Despite the carnage RKUS has an A/D rating of "B", and has seen a fair amount of buying over the past 4 weeks, gaining over 13% last week while the rest of the market imploded. RKUS could be a buy for aggressive traders with a pivot of ~ 12.25 combined with tight stops.
 



Silver Spring Networks (SSNI) has a market cap pushing $1B but average daily trade is only 107K making this a thin one. SSNI is seeing modest accumulation with a "B-" A/D rating and 50 day up/down volume ratio of 1.2. SSNI broke out to new highs Friday only to reverse hard to finish at its low of the day, suggesting it could see lower prices in coming days. Regardless, SSNI is worth having on the watch list with a 23.00 pivot.



Semiconductors: Performance within the semiconductor sector has been strong, over the trailing 5 weeks the Philadelphia Semiconductor Index has posted a 2.1% loss vs. a 4.5% loss for the S&P 500, and over the trailing 26 weeks has outgained the S&P 19.5% vs. 11.3%.

Diodes Inc. (DIOD) is under accumulation with a "B+" A/D rating and a 50 day up/down volume ratio of 1.5. The last 2 quarters have seen healthy increases in both EPS and sales, and analysts forecast FY '13 EPS +104%, FY '14 +54%. On Friday DIOD gained 2.2% on volume almost 2.5x above average, and closed above the upper Bollinger band. DIOD looks like a purchase at current levels as it breaks higher out of a volatility squeeze.


This TC2000 chart shows the volatility squeeze:

Electronics: The Elec-Contract Mfg group (G3664) is ranked #99 in MarketSmiths industry group rankings, +56 over the past 9 weeks. Short term price performance has been very strong with the group ranking in the top 50 of the trailing 1, 2, 3, 5 and 13 week price performance lists. Last week it gained 1.2% to finish #8 for the week.

T T M Technologies (TTMI) has a "B-" A/D rating with analysts forecasting FY '14 EPS +31%. Modest performance credentials that normally wouldn't merit mention except for the extended Bollinger Band squeeze seen on the TC2000 chart. Might be good for a short term trade if/when it breaks out of the squeeze. TTMI saw a ton of buying in the last 45 minutes Friday afternoon.


 


Benchmark Electronics (BHE) is another squeeze, it tried to break out at Thursday's open but was quickly slapped down. Might be good for a short term trade if/when it breaks higher out of the squeeze.
 




Healthcare: The Comml Svcs-Healthcare group (G3441) is on a tear, the group is ranked #18 on the trailing 5 week price performance list with a 2.1% gain, and has jumped +100 over the same time period to rank #75 in MarketSmith's industry group rankings.

Healthcare Services Group (HCSG) gained 7.2% last week in volume 62% above average. HCSG looks like a buy at current levels with a stop placed just below the bottom of Thursday's range, ~  22.75. 



Banks: Regional banks did very well last week while the money center and foreign banks were clobbered. The table below shows 1 week price performance and rank for banking related groups:


Price Performance
Industry Group
1 Week Gain
1 Week Rank
Banks-Super Regional
1.8%
4
Banks-Midwest
1.2%
7
Banks-Northeast
1.2%
9
Banks-West/Southwest
1.1%
11
Banks-Southeast
0.7%
18
Banks-Money Center
-3.5%
159
Banks-Foreign
-5.7%
193

The top 5 groups above also rank in the top 50 of the trailing 5 week price performance list.

Boston Private Financial Holdings (BPFH) is seeing accumulation with an "A-" A/D rating and 50 day up/down volume ratio of 1.2. Pivot point is 10.20.


Capital Bank Financial (CBF) is a recent IPO that gained in price under horrid market conditions last Wednesday & Thursday before getting turned back on Friday in heavy volume. Definitely one for the watch list.

Prosperity Bancshares (PB) is under accumulation with a "B+" A/D rating and 50 day up/down volume ratio of 1.6. The Bollinger bands are starting to squeeze. Pivot point ~ 51.


This TC2000 chart shows the squeeze:


B B C N Bancorp (BBCN) gained 6.3% last week in greater than 2x average volume.


Bancorpsouth (BXS) saw heavy volume last week:


Hilltop Holdings (HTH) is in a volatility squeeze:


This TC2000 chart shows the squeeze:



M&T Bank (MTB) saw heavy volume last week:
 


Finance: Similar to banks, finance related groups displayed a clear dichotomy in performance over the past week:


Price Performance
Industry Group
1 Week Gain
1 Week Rank
Finance-Commercial Loans
0.3%
23
Financial Svcs-Specialty
-0.4%
37
Finance-Crdtcard/Pmtpr
-0.6%
43
Finance-Invest Bnk/Bkrs
-0.6%
45
Comml Svcs-Leasing
-3.0%
145
Finance-Investment Mgmt
-4.0%
173
Finance-Consumer Loans
-4.0%
176
Finance-Mrtg&Rel Svc
-5.4%
191

On Friday Vantiv (VNTV) gained 2.9% in volume 88% above average as it left this consolidation / volatility squeeze: VNTV is under accumulation with an "A" A/D rating, 50 day up/down volume ratio of 1.2 and institutional sponsorship increases of 179 > 202 > 227 > 250 over the last 4 quarters.

 

Last week's market didn't slow down Lifelock (LOCK) as it gained 5% in volume 90% above average. A/D rating "A-", 50 day up/down volume ratio 2.7. Analysts EPS projections FY '13 +162%, FY '14 +41%.

 

 

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