Sunday, June 9, 2013

Sector & Group Rotation Notes – 6/9/13



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. 

New readers, or readers unfamiliar with some of the technical data points referenced by the blog, may wish to review the glossary. The glossary is by no means comprehensive, but covers the data points referenced most frequently by the Sector Trends blog.

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
0.0%
1.1%
0.7%
8.1%
8.8%
24.8%
Philadelphia Semiconductor Index
0.6%
2.2%
0.2%
4.6%
8.3%
24.2%
Russell 2000
0.4%
0.3%
-0.9%
3.5%
4.8%
20.1%
Nasdaq Composite
0.4%
0.3%
-0.9%
2.7%
6.9%
16.5%
Dow Jones Transportation Index
0.9%
-0.8%
-3.1%
2.0%
3.3%
23.7%
DJIA
0.9%
-0.4%
-0.7%
1.8%
5.9%
15.9%
SP 500
0.8%
-0.4%
-1.4%
1.8%
5.9%
15.9%
Russell 1000 Energy Index
0.9%
-0.5%
-1.0%
1.5%
2.7%
11.7%
Pboe Oil Service Index
1.6%
-0.6%
-2.4%
0.8%
5.4%
16.3%
Cboe Technology Index
0.0%
0.8%
0.4%
0.6%
1.5%
3.7%
Philadelphia Gold/Silver Index
-1.6%
5.0%
8.3%
-1.9%
-20.8%
-34.8%
Philadelphia Housing Index
-3.8%
-6.7%
-8.8%
-4.5%
-0.3%
17.1%
Philadelphia Utility Index
-0.3%
-3.7%
-7.0%
-9.0%
-1.4%
5.6%


For the past two weeks the Sector Trends market outlook has been "while the market may enter a trading range and/or see increased volatility, a serious pullback is not imminent." So far market performance is proving this assessment accurate.

Last week the markets started with a decent Monday that deteriorated on Tuesday into a nasty distribution day on Wednesday, only to see the markets stabilize Thursday and stage a strong bounce higher on Friday.

The rotation into tech noted last week continued. 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)
3
4
4
4
4
4
# in the bottom 50 groups (out of 197)
12
7
6
7
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)
12
13
14
11
4
6
# in the bottom 50 groups (out of 197)
6
2
4
3
8
6

30 Defensively Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
6
5
5
7
8
8
# in the bottom 50 groups (out of 197)
4
11
10
11
3
7

Once again tech oriented groups led while the performance of defensively oriented groups meandered. Commodity oriented groups underperformed with the exception of energy exploration groups which prospered.

In addition to the group performance noted above, another data point auguring well for tech stocks is the performance of the Cboe Technology Index and the Philadelphia Semiconductor Index. While the tech index finished flat for the week, the index gives a 36% weighting to Apple which finished the week -1.8%. The table below shows the CBOE Tech Index's performance x-Apple:

Index
1 Week Gain
2 Week Gain
Philadelphia Semiconductor Index
0.6%
2.2%
Cboe Technology Index x-Apple
1.5%
1.7%
Russell 2000
0.4%
0.3%
Nasdaq Composite
0.4%
0.3%
DJIA
0.9%
-0.4%
SP 500
0.8%
-0.4%


Lastly, consider the catalyst for Friday's move: the employment report. There was nothing special about this report, in fact it was utterly predictable. It beat expectations by a measly 8K, and the 175K jobs landed almost in the center of the 147K - 210K range. This could have been interpreted anyway the market wanted, but it was interpreted bullishly. Obviously this is a plus for the market going forward.

The Sector Trends market view remains unchanged: the markets could see additional volatility but a serious pullback is not imminent. The turbulence is a reaction to Fed "tapering" talk, and is manifesting itself in the market by a rotation from yield to growth, with a preference for technology issues, and to a lesser extent sections of the energy sector. 

Charts:
 
Tech: The following charts are pulled from the 28 technology oriented industry groups referenced in the industry group performance table above.

Bazaarvoice (BV) was featured last week and exploded higher for a 27% weekly gain. If you didn't buy last week its probably best to wait for a consolidation or pullback at this point. Weekly chart:
 


Jive Software (JIVE) was also featured in last week's post. JIVE meandered for most of the week until 2:30 PM Friday afternoon when it starting bolting higher in very heavy volume. JIVE finished the day +6.3% in volume 44% above average. JIVE is now 1% past its pivot out of a 13 week cup & handle base. On May 24 SAP announced it had been in talks to acquire JIVE, but had ended them. During a recent analyst day JIVE indicated they believe they are the only enterprise social platform that delivers measurable return on investment.


Tango (TNGO) is another repeat from last week showing strong accumulation. A/D rating "B+", the 50 day up/down volume ratio is strong at 2.2, and the 25 day ratio is even stronger at 3.1. Analysts forecast FY '13 EPS +38%, FY '14 +25%. ROE is 16%, and institutional sponsorship increased in the most recent quarter from 175 to 189 funds. TNGO has a 15.24 pivot out of a 16 week cup & handle pattern.


Chipmos (IMOS) spent the week consolidating in this narrow channel, but gained 1.5% for the week moving slightly out of the 3-weeks tight setup highlighted last week. 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. A/D rating 'A+", and has an 18.81 pivot out of the channel. IMOS has already had a nice run, so this one is probably best for aggressive traders keeping tight stops. Weekly chart:    
 

Magnachip (MX) gained 2.1% on the week leaving it 3% past its 18.25 pivot and still within the 5% buy zone. MX is seeing accumulation with an accumulation/distribution rating of "B",  50 day up/down volume ratio of 1.5. Institutional sponsorship has increased 104 > 120 > 127 > 143 over the last 4 quarters. EPS 95, RS 93, ROE 35%. Weekly chart:
 

Qihoo 360 (QIHU) gained 30% in 3 weeks, and has spent the last 3 weeks drifting in a horizontal consolidation. QIHU is seeing strong accumulation with an "A-" A/D rating, and a 50 day up/down volume ratio of 2.5, and institutional sponsorship has increased 88 > 97 > 122 > 130 over the last 4 quarters. QIHU looks like a buy on a move over 45.50. Weekly chart:
 

Invensense (INVN) was featured last week and at one point on Tuesday had logged an 8.3% gain for the week, only to fall back Wednesday & Thursday. INVN still looks good here, currently 1% past a 13.13 pivot.


Verint Systems (VRNT) is a software firm out of the security group that is seeing a very high level of accumulation, with buyers stepping in all last week. Especially note how when it gapped down on Tuesday's open buyers appeared in droves. Institutional sponsorship meandered in the 175 - 193 range for 5 quarters until spiking to 275 in the most recent quarter. VRNT has a 37.00 pivot out of a cup shaped base but aggressive traders could take a position right here at 35.38.


Servicesource Intl (SREV) is up 47% since announcing earnings that beat expectations May 9. JMP Securities has a $12 target, and expects the company's multiple to increase as it transitions from a fully managed service offering to a software-as-a-service technology platform. A/D "B+", and the 50 day up/down volume ratio is 1.7. Aggressive traders could consider a position on a break higher out of this short 2 week consolidation.

 
SREV Weekly chart:


Energy: The following charts are pulled from the US exploration group:

Oasis (OAS) was highlighted here two weeks ago, and on Friday broke through its 39.68 buy point on volume 39% above average. For the week OAS gained 9.8% and now stands 3% past its pivot. EPS 84, RS 84, ROE 26%, PE 17 with analysts forecasting FY '13 EPS +35%, FY '14 +27%. Weekly chart below:


Sanchez Energy (SN) was highlighted in the 5/26 Sector Trends blog and has spent the past two weeks consolidating in a narrow range. SN is under accumulation with a “B” accumulation/distribution rating, 50 day up/down volume ratio of 1.5. FY ’13 EPS are forecast +539%, and FY ’14 +78% to $2.61 per share, giving SN a forward PE ratio of ~8.5 when using FY ’14 estimates. Pivot point would be a move above 22.42, although taking part of a position here might make sense. Weekly chart below.

Matador Resources (MTDR) is an exploration company working areas of Texas and Louisiana. MTDR is a smaller equity than what is normally featured here with a market cap of only 566M and average daily volume of 255K, so it may not be everyone's cup of tea... But, MTDR is showing some serious accumulation with an "A-" A/D rating and a 50 day up/down volume ratio of 1.4; institutional sponsorship has increased 93 > 101 > 109 > 117 over the last 4 quarters. Analysts forecast FY '13 EPS of 0.57 per share, FY '14 of 0.85 per share, giving MTDR a forward PE of ~ 8.5. MTDR looks like a buy here at current levels.


Chesapeake Energy (CHK) was featured two weeks ago working on a cup shaped chart pattern which has since turned into a cup & handle 22.86 pivot. CHK has a “B” accumulation/distribution rating, and a 50 day up/down volume ratio of 1.5 Analysts forecast FY ’13 EPS +144%, and FY ’14 +39% to 2.07 per share giving CHK a forward PE of ~ 10.6.


Energen (EGN) is another exploration stock seeing strong accumulation. A/D rating "A", 50 day up/down volume ratio 1.5. Note on the weekly chart below that over the last year and a half EGN has approached the 56 level and quickly reversed; this time it has approached the level and has spent the last 3 weeks consolidating just below it. Analysts forecast FY '14 EPS +22%.
 


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