Sunday, July 21, 2013

Sector & Group Rotation Notes – 7/21/13



Listed below are notes from the author's weekly analysis.

Notice: the Sector Trends blog will not publish next weekend, but will return Sunday, August 4.

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
KBW Large Cap Bank Index
2.4%
3.3%
7.6%
9.8%
20.4%
23.5%
Pboe Oil Service Index
1.9%
4.2%
7.6%
7.5%
15.2%
13.3%
Russell 2000
1.3%
4.5%
7.5%
7.0%
15.1%
17.7%
Philadelphia Utility Index
1.7%
6.3%
4.2%
5.8%
-3.8%
9.8%
Russell 1000 Energy Index
2.2%
4.7%
6.8%
5.3%
11.6%
9.6%
Nasdaq Composite
-0.3%
3.1%
5.4%
4.8%
11.9%
14.4%
Philadelphia Semiconductor Index
-0.7%
2.1%
3.8%
4.4%
16.6%
18.4%
Dow Jones Transportation Index
2.3%
4.7%
6.7%
4.4%
9.2%
15.6%
SP 500
0.7%
3.7%
5.3%
4.0%
8.8%
13.9%
DJIA
0.5%
2.7%
4.3%
3.1%
6.8%
13.9%
Cboe Technology Index
0.1%
2.5%
5.3%
1.8%
8.8%
1.4%
Philadelphia Housing Index
-0.5%
6.2%
4.1%
-2.0%
3.6%
-0.3%
Philadelphia Gold/Silver Index
5.9%
9.7%
5.2%
-7.5%
-7.8%
-41.2%

The S&P 500 edged higher last week with a 0.7% gain, while the Nasdaq fell -0.3%. The Russell 2000 continued to lead the major broad based indexes with a 1.7% gain, and over the trailing 5 weeks has gained 7%, a result 75% better than the S&P's 4% gain. The Nasdaq picked up 3 distribution days last week, and the S&P 1.

Earnings results helped drive index performance both +/- last week. Bank stocks did particularly well  as BAC gained 7.04% for the week, followed by  MS +5.63%, and C + 3%. The Nasdaq's Friday distribution day was largely a result of Microsoft's huge miss and resulting -11.4% decline, helped along by Google's earnings miss and subsequent 1.5% decline. Microsoft traded 5x average volume, Google 3x. GE was a boost for the DJIA and S&P 500, gaining 4.6% on 2.5x average volume after beating expectations by a penny on Friday. More importantly, GE reported a record backlog of equipment and services suggesting improved future sales and margins.

896 companies will report next week, including large caps Apple, AT&T, Visa, Amazon, McDonalds, UPS, Boeing and Facebook. It will be another heavy week for the Banking sector with 136 banks reporting, followed by the Medical sector with 73 reports, Energy 51, Real Estate and Semiconductors 42 each, and Retail with 40.

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)
9
8
11
8
4
5
# in the bottom 50 groups (out of 197)
8
7
7
12
9
14

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
3
5
7
10
10
4
# in the bottom 50 groups (out of 197)
10
7
6
3
3
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)
10
10
2
3
5
7
# in the bottom 50 groups (out of 197)
5
4
9
9
15
2

The performance of commodity oriented groups has improved, driven almost exclusively by the performance of energy related groups.

Industry Group Performance:

Banks: Four weeks ago the June 23 blog post highlighted the improving performance of regional banks. The table below shows the banking issues from that post, and their subsequent performance:

Blog Post
Symbol
Name
Performance
6/23/2013
BBCN
B B C N BANCORP INC
17.6%
6/23/2013
PB
Prosperity Bancshares
16.9%
6/23/2013
BXS
Bancorpsouth Inc
14.0%
6/23/2013
BPFH
Boston Pvt Finl Hldgs
12.1%
6/23/2013
MTB
M & T Bank Corp
11.3%
6/23/2013
HTH
Hilltop Hldgs Inc
6.4%
6/23/2013
CBF
Capital Bank Financial
6.4%

Last week Banking related industry groups had another strong week with 5 of the 7 groups finishing in the top 50 of the trailing 1 week price performance list, the only exceptions being Banks-Foreign, #85, +1.1%; and Banks-Super Regional, #105, +0.7%.

Much of this performance was driven by investor reaction to earnings reports from the sector. Last week 86 banks reported earnings, the table below summarizes their performance by industry group.



Average Weekly Gain
# Reporting
% with Weekly Gain
BANKS REPORTING EPS  LAST WEEK
3.20%
86

Banks-Foreign
2.28%
1
100%
Banks-Midwest
7.41%
10
90%
Banks-Money Center
4.81%
5
100%
Banks-Northeast
2.58%
19
89.5%
Banks-Southeast
2.38%
20
80%
Banks-Super Regional
0.63%
9
77.8%
Banks-West/Southwest
3.30%
22
90.1%
Grand Total
3.20%
86
87.2%

As the table demonstrates EPS reports from the sector were well received with 87.2% of those reporting showing an increase in price over the week.

The Savings & Loan sector showed similar performance, with the 10 companies reporting averaging a 4.7% increase, and 100% showing a weekly gain. Of the 10 companies reporting, 6 had 4%+ gains for the week. If you combine the two sectors together, 88.5% of the 96 companies reporting finished the week with a gain.

Next week 136 banks and 37 savings & loans will report EPS. The data listed above suggests selections from these industry groups could continue to provide high probability positive returns.

Columbia Banking (COLB) broke out of this short descending channel Thursday on volume +36% to average and appears to be headed higher. COLB is under accumulation with an "A" A/D rating and a 50 day up/down volume ratio of 2.1; institutional sponsorship has increased 256 > 266 > 275 over the trailing 3 quarters. COLB reports next Thursday, 7/25.
 

Flagstar Bancorp (FBC) is showing strong accumulation as it emerges from a volatility squeeze. A/D "B+", 50 day up/down volume ratio is 1.6, and the 25 day ratio is 2.6. Institutional sponsorship has increased 54 > 90 > 100 > 108 over the trailing 4 quarters, and analysts forecast FY '13 EPS +149%, and FY '14 +18%. FBC announces earnings this coming Tuesday.


This TC2000 chart shows the volatility squeeze:
  



TCF Financial (TCB) is another Midwest regional showing good accumulation. A/D "B+", with a 50 day up/down volume ratio of only 1.1, but a 25 day ratio of 1.5. Analysts forecast FY '13 EPS +41%, and FY '14 EPS +29%. TCB yields 1.3%, and reports this coming Tuesday.



National Bank Holdings (NBHC) is a recent IPO under very heavy accumulation. NBHC enjoys a "B+" A/D rating, and a 50 day up/down volume ratio of 2.0. NBHC has a 19.82 pivot out of a cup & handle base, and reports EPS this coming Thursday.



Susquehanna Bankshares (SUSQ) looks ready to move higher out of this short two week consolidation. SUSQ reports on Wednesday.



Energy: The Sector Trends blog has been highlighting energy issues with some regularity this year, and did a deep dive on the sector in the May 26 blog post. The table below shows all energy issues featured in the blog since the May 5 post, and their subsequent performance:
 

Blog Post
Symbol
Name
Performance
6/9/2013
MTDR
Matador Resources Co
23.6%
5/5/2013
GTLS
Chart Industries Inc
17.8%
5/26/2013
OAS
Oasis Petroleum Inc
12.2%
6/30/2013
FTK
Flotek Industries Inc
10.0%
5/26/2013
SN
Sanchez Energy Corp
8.9%
5/5/2013
FET
Forum Energy Technology
7.0%
5/26/2013
HLX
Helix Energy Solutions
7.0%
5/19/2013
ATW
Atwood Oceanics Inc
6.1%
5/26/2013
DRQ
Dril Quip Inc
4.5%
5/26/2013
DRC
Dresser-Rand Group Inc
4.2%
5/26/2013
CHK
Chesapeake Energy
4.2%
5/26/2013
COG
Cabot Oil & Gas Corp
3.8%
6/9/2013
EGN
Energen Corp
3.5%
5/26/2013
MRC
M R C Global Inc
-13.5%
5/26/2013
TSO
Tesoro Corp
-15.5%

Last week was a strong week for energy related industry groups with 7 groups finishing in the top 50 of the 1 week price performance list.  Over the trailing 3 weeks 8 energy groups rank in the top 50 groups as shown in the table below:



Price Performance

Industry Group
Symbol
3 Week Gain
3 Week Rank
Industry Group Rank
Oil&Gas-Cdn Expl&Prod
G1312
13.4%
4
156
Energy-Solar
G1320
11.1%
10
1
Energy-Alternative/Other
G1318
9.8%
18
6
Oil&Gas-U S Expl&Prod
G1310
8.6%
27
85
Oil&Gas-Field Services
G1380
8.3%
34
43
Oil&Gas-Drilling
G1381
7.9%
40
178
Oil&Gas-Machinery/Equip
G3533
7.9%
41
91
Oil&Gas-Intl Expl&Prod
G1315
7.9%
42
173
Oil&Gas-Integrated
G1317
7.0%
69
179
Energy-Coal
G1319
4.1%
155
187
Oil&Gas-Transprt/Pipelne
G4922
1.5%
185
86
Oil&Gas-Royalty Trust
G1311
-0.8%
192
186
Oil&Gas-Refining/Mktg
G2900
-1.2%
193
111

The data suggests production related groups are turning the corner - note how in the table above all 3 exploration groups have low Market Smith industry group ranks compared to their 3 week price performance.

This weekly chart of the Pboe Oil Service Index shows a breakout from a bullish ascending triangle pattern:


This weekly chart of the Russell 1000 Energy index shows the same bullish ascending triangle and breakout, but with a close at new highs:
 


The Energy-Alternative/Other group (G1318) gained 5.6% for the week and closed above resistance:

  



The May 26 blog post wrote solar was "going parabolic", and the group declined 20% over the following 4 weeks. The group has since stabilized somewhat, and could provide opportunities:


The Oil&Gas-Field Services group has broken out to a new post '08 high:



The Oil&Gas-Machinery/Equip group has broken to a new high:



The Oil&Gas-U S Expl&Prod group has broken above resistance:



 
Oceaneering International (OII) was last mentioned in the January 20th blog post and since gained 34%. OII still looks good, and is showing a strong "B+" A/D rating. The 50 day up/down volume ratio is a modest 1.0, but the 25 day ratio is much stronger at 1.7
 




Dril Quip (DRQ) is also showing significant accumulation, and looks like a buy with a break out of this short descending channel:



FMC Technologies (FTI) is in the midst of an 8 week flat base and has seen very heavy accumulation over the past 5 weeks. The 50 day up/down volume ratio is a comparatively normal 1.4, but the 25 day ratio is a potent 2.3, suggesting positive price action in the near future. FTI looks like a buy at current levels, with an add when it hits it's flat base pivot of 59.27.



Sanchez Energy (SN) still looks good, but could be waiting for earnings due August 8.



Continental Resources (CLR) is $1.10 away from new highs. A/D "B+", SMR "A", ROE 22%, EPS 93, RS 76. Weekly chart.



Laredo Petroleum (LPI) looks good out of this ascending triangle (also a volatility squeeze).



Dresser Rand (DRC) is showing modest accumulation, but looks headed higher over time.



Noble Corp (NE) needs more accumulation but if it starts to show up look for a solid move higher, especially if those analysts EPS estimates come to pass. Weekly chart.



Tesco Corp (TESO) looks like a good bet to complete this cup pattern:

 

 

Transports: Transportation related groups had a very strong week with 4 groups in the top 10 of the trailing 1 week price performance list, and 6 in the top 40 - only the Transportation-Truck group lagged finishing #184 with a -1.8% loss.


Price Performance

Industry Group
1 Week Gain
1 Week Rank
MS Ind. Group Rank
Transportation-Airline
4.7%
5
36
Transportation-Logistics
4.4%
6
141
Transport-Air Freight
4.1%
8
165
Transportation-Ship
3.6%
10
98
Transportation-Equip Mfg
2.6%
27
81
Transportation-Rail
2.3%
39
133
Transportation-Truck
-1.8%
184
9

The Dow Jones Transportation index hit a new high:



American Railcar (ARII) is 24% off its 52 week high, yet is seeing very heavy accumulation. Over the past week ARII's A/D rating has improved from "C-" to "B", and its 25 day up/down volume ratio of 2.1 confirms very heavy short term accumulation. ARII looks like a buy at current levels.



Jetblue (JBLU) has seen heavy accumulation over the past 3 weeks as it begins work on the right side of this cup shaped pattern. Over the past week the A/D ratings has improved from "C+" to "B+", and the modest 50 day up/down volume ratio of 1.2 is belied by the robust 25 day ratio of 2.9. JBLU looks like a buy at current levels.



Southwest Airlines (LUV) has seen consistent increases in institutional sponsorship, 772 > 847 > 931 > 950 over the trailing 4 quarters. LUV has a 14.10 pivot out of a double bottom base.



Republic Airways (RJET) looks like a buy if it pulls back into the 5% buy zone:



United Continental (UAL) has a 35.27 pivot out of a 9 week consolidation:



Pacer International (PACR) has a 6.67 pivot out of a tight 5 week flat base:



Aerospace/Defence: The Aerospace-Defense group (G3722) has been a consistent performer, ranking in the top 100 groups since early March. Over the last two weeks the group has jumped +29 in MarketSmith's industry group rankings, from #57 to #28.


Textron (TXT) looks attractive here after breaking through a 15 week descending trend line in heavy volume. TXT has a "B" A/D rating, and its 50 day up/down volume ratio is only 1.3, but the 25 day ratio of 2.3 reflects the strong interest over the trailing 3 weeks. TXT reaching the top of its current consolidation around $31 looks like a reasonably high probability outcome.



Gencorp (GY) has spent the past 3 weeks working on a tight channel, another week or two of this type of price action should generate an attractive volatility squeeze. Not a buy yet, but one for the watch list.



Staffing: The Comml Svcs-Staffing group (G1011) is ranked #9 on the trailing 3 week price performance list with an 11.2% gain, and over the past two weeks has jumped +35 in MarketSmith's industry group rankings from #94 to #59.

AMN Healthcare Services (AHS) has seen modest accumulation over the past 8 weeks of this 16 week consolidation. Analyst's forecast FY '13 EPS +30%, FY '14 +20%. Buy point 15.94.



Tech: Over the past two months the Sector Trends blog has highlighted the promising price action in technology oriented groups, and many of the highlighted stocks have performed well.

However, when analyzing current industry group price action it appears investor appetite for tech oriented names has begun to wane. Semiconductors in particular look weak, but reaction to next week's earnings reports from the sector will probably tell you what you need to know (42 companies report). This doesn't mean current tech oriented holdings are necessarily in any danger, but it does suggest the portion of an individual stock's performance provided by industry group and sector strength could begin to weaken. Traders with shorter term horizons are probably best suited making selections from other sectors.

The table below lists the tech oriented stocks highlighted by the Sector Trends blog since the May 5 blog post.
 

Blog Post
Symbol
Company
Performance

Sector
6/2/2013
BV
Bazaarvoice Inc
38.6%

SOFTWARE
6/9/2013
SREV
Servicesource Intl Llc
34.7%

SOFTWARE
6/30/2013
IL
Intralinks Holdings Inc
33.2%

SOFTWARE
6/9/2013
QIHU
Qihoo 360 Technology Ads
32.6%

SOFTWARE
6/23/2013
SREV
Servicesource Intl Llc
22.5%

SOFTWARE
6/23/2013
DWRE
Demandware Inc
18.2%

SOFTWARE
6/23/2013
BV
Bazaarvoice Inc
14.7%

SOFTWARE
6/2/2013
TNGO
Tangoe Inc
14.0%

SOFTWARE
6/2/2013
CHKP
Check Point Sftware Tech
12.7%

SOFTWARE
5/5/2013
WDAY
Workday Inc Cl A
7.1%

SOFTWARE
6/2/2013
JIVE
Jive Software Inc
3.6%

SOFTWARE
6/9/2013
VRNT
Verint Systems Inc
2.9%

SOFTWARE
6/30/2013
QLYS
Qualys Inc
-3.7%

SOFTWARE


Sector average:
17.8%








5/5/2013
WBMD
Webmd Health Corp
24.1%

INTERNET
6/2/2013
YNDX
Yandex N V Class A
14.9%

INTERNET


Sector average:
19.5%








6/23/2013
TTMI
T T M Technologies Inc
13.4%

ELECTRNCS
6/23/2013
BHE
Benchmark Electronics
6.5%

ELECTRNCS


Sector average:
9.9%








6/23/2013
RKUS
Ruckus Wireless Inc
17.1%

COMPUTER
6/2/2013
SGI
Silicon Graphics Intl
15.6%

COMPUTER
5/26/2013
EFII
Electronics For Imaging
11.6%

COMPUTER
6/23/2013
SSNI
Silver Spring Networks
10.7%

COMPUTER
6/30/2013
ALLT
Allot Communications Ltd
9.5%

COMPUTER
5/19/2013
EZCH
Ezchip Semiconductor Ltd
3.3%

COMPUTER
6/23/2013
XXIA
I X I A
-15.6%

COMPUTER


Sector average:
7.5%








6/2/2013
INVN
Invensense Inc
20.6%

CHIPS
6/2/2013
XLNX
Xilinx Inc
12.8%

CHIPS
5/26/2013
NXPI
Nxp Semiconductors N V
10.3%

CHIPS
6/23/2013
DIOD
Diodes Incorporated
6.7%

CHIPS
6/2/2013
MX
Magnachip Semiconductor
3.0%

CHIPS
6/2/2013
ATML
Atmel Corp
-2.3%

CHIPS
6/2/2013
IMOS
Chipmos Technologies Ltd
-7.9%

CHIPS


Sector average:
6.1%



   

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