Sunday, August 25, 2013

Sector & Group Rotation Notes – 8/25/13



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.

Index
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Philadelphia Gold/Silver Index
1.9%
14.1%
18.3%
17.5%
10.7%
-18.3%
Cboe Technology Index
-0.1%
1.8%
0.9%
4.4%
5.0%
7.1%
Nasdaq Composite
1.5%
-0.1%
-0.9%
2.0%
5.7%
15.7%
Russell 2000
1.4%
-1.0%
-2.0%
-1.2%
5.5%
13.3%
Dow Jones Transportation Index
1.7%
0.0%
-2.6%
-1.6%
1.3%
9.0%
S&P 500
0.5%
-1.7%
-2.7%
-1.7%
0.8%
9.8%
KBW Large Cap Bank Index
0.3%
-0.6%
-3.0%
-1.7%
6.6%
19.1%
Russell 1000 Energy Index
0.4%
-1.3%
-2.4%
-3.2%
-0.3%
3.9%
DJIA
-0.5%
-2.7%
-4.1%
-3.4%
-1.9%
7.2%
Pboe Oil Service Index
0.6%
-0.8%
-2.2%
-3.9%
0.8%
6.4%
Philadelphia Semiconductor Index
0.3%
-1.7%
-4.0%
-4.6%
0.5%
9.1%
Philadelphia Utility Index
0.7%
-4.2%
-5.2%
-5.4%
-4.0%
0.3%
Philadelphia Housing Index
-0.3%
-1.3%
-5.9%
-8.3%
-16.2%
-6.1%

Last week was another constructive week of consolidation as the Nasdaq gained 1.5%, the Russell 2000 +1.4%, and the S&P 500 +0.5%. Only the DJIA lagged with a 0.5% pullback. Market action pointed to increasing signs of strength: on Tuesday the Russell 2000 promptly regained and held its 50 day moving average after briefly falling below it on Monday; and the Nasdaq's 1.5% gain came despite its largest component, Apple, giving back 0.3% for the week. Transports also performed well with the Dow Jones Transportation Index picking up 1.7%, and 5 of 7 transportation related industry groups ranking in the top 50 of the trailing one and two week price performance lists.

International economic data continues to improve. Last week China's Manufacturing PMI turned positive with a 50.1 reading suggesting the Chinese economy could be regaining some of its lost momentum. In Europe the flash estimate of the August euro-zone composite PMI rose to 51.7 from 50.5, rising for the fifth consecutive month. While the gains improvement was led by Germany, euro-zone economies on the periphery also saw improvement.

This improving economic data has translated into improved market performance. Over the trailing 5 weeks the S&P 500 ETF (SPY) ranks dead last compared to the Chinese and euro-zone ETFs tracked by the Sector Trends blog. The table below shows the trailing 5 weeks price performance by these ETFs and is sorted high to low by 5 week performance. The green and red shading denotes performance +/- relative to the SP 500 for the time period in question.

Symbol
Description
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
EWP
Spain
-1.1%
-0.4%
2.3%
12.5%
EWO
Austria
0.0%
1.8%
4.3%
10.2%
EWI
Italy
-1.3%
0.9%
3.8%
9.9%
EPOL
Poland
1.1%
0.2%
2.6%
8.4%
EWK
Belgium
0.3%
0.1%
2.1%
7.6%
GXC
China
-0.5%
2.1%
1.4%
6.3%
EZU
Europe
0.0%
0.4%
1.6%
6.2%
FEZ
Europe
-0.3%
0.3%
1.2%
6.0%
EWQ
France
-0.5%
0.0%
1.1%
5.9%
FXI
China
-1.4%
3.3%
2.0%
5.7%
EWN
Netherlands
0.7%
0.4%
2.1%
5.5%
MCHI
China
-1.1%
2.2%
1.2%
5.2%
HAO
China
-0.2%
0.8%
1.2%
5.0%
CHIQ
China
-1.6%
-1.8%
-0.3%
4.4%
IEV
Europe
0.2%
0.1%
1.1%
3.9%
VGK
Europe
0.2%
0.2%
1.2%
3.8%
EWG
Germany
0.9%
1.1%
0.9%
3.2%
EWL
Switzerland
1.2%
0.2%
1.4%
3.1%
EWD
Sweden
-0.4%
-0.5%
1.6%
3.0%
EWU
UK
-0.1%
-0.5%
0.0%
0.9%
SPY
S&P 500
0.5%
-1.6%
-2.5%
-1.5%
 
If recent angst has been caused by investor concerns over tapering, those concerns may have waned last week when with regard to eventual tapering and the federal funds rate, Fed minutes stated "a highly accommodative stance of monetary policy would remain appropriate for a considerable period after purchases are completed". Market participants will pay close attention to the employment situation report September 6 for an early read on the next FOMC meeting announcement September 18. Some investors reacted to those comments in a way that suggests they believe interest rates may begin to consolidate and perhaps even decline from current levels: on Friday the Ishares 20+ Year Treasury ETF gained 1.1% in volume 88% above average - its highest volume trading day in 9 weeks. If this turns out to be more than a one day wonder its possible interest rate sensitive groups, which have been pounded hard, could begin to recover.



A broader view of industry group performance shows tech oriented groups continuing to perform well, and a near total absence of any defensive rotation. In fact it appears the rotation from defensively oriented to growth oriented groups is continuing. 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
12
10
5
1
3
# in the bottom 50 groups (out of 197)
6
5
4
7
8
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
12
14
15
13
9
# in the bottom 50 groups (out of 197)
4
2
4
4
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)
5
2
5
6
5
6
# in the bottom 50 groups (out of 197)
11
18
11
13
10
5

Last week in summarizing its market outlook the blog wrote "some call this a "market in correction". The Sector Trends blog strongly disagrees with this market view and suggests readers look at this as a "market in rotation"... The view here remains that a major pullback in equities is unlikely, and odds favor the market moving higher after a period of consolidation. Growth oriented equities should perform particularly well, especially those with high RS and EPS rankings." Nothing has changed in this view, other than the improving data from China and the euro-zone suggests the move higher may come sooner rather than later.

Industry Group Performance:

Transports: The improved Chinese and euro-zone economic data mentioned above sparked strong price action in transportation related groups last week. The table below highlights their performance for the week:



Price Performance

MarketSmith Group Rank
Industry Group
Symb.
1 Week Gain
1 Week Rank


Transportation-Ship
G4411
5.1%
2

93
Transportation-Truck
G4210
4.0%
4

46
Transportation-Equip Mfg
G8075
3.3%
8

115
Transport-Air Freight
G4512
2.8%
16

168
Transportation-Logistics
G4700
2.3%
24

121
Transportation-Airline
G4511
1.0%
94

85
Transportation-Rail
G4010
0.6%
126

171


Diana Shipping (DSX) is under accumulation as can be seen on the weekly chart below. DSX's RS line is hitting a new high.


Scorpio Tankers (STNG) is seeing impressive quarterly sales increases and analysts forecast FY '14 EPS +138%. Institutional sponsorship was mired at an average of 103 for 5 consecutive quarters before jumping to 103 > 146 > 162 over the last 3. STNG enjoys an "A" sponsorship rating. It's not doing much at the moment, but is one for the watch list.


Trinity Industries (TRN) is another name from the sector that has seen an increase in institutional interest after a period of stagnation. Funds had averaged ~ 340 for 5 quarters before increasing 373 > 407 > 447 over the last 3 quarters. TRN is one for the watch list with an alert set at 45.50.


Wabash National (WNC) is also seeing increased institutional sponsorship, after 5 quarters averaging ~205 funds sponsorship has increased 207 > 217 > 236 > 259. Wabash has an "A-" A/D rating and an up/down volume ratio of 1.4.


Electronics: Nine weeks ago the June 23 blog post highlighted the emerging strength in the Elec-Contract Mfg group (G3664), highlighting T T M Technologies Inc (TTMI) and Benchmark Electronics (BHE). Since that post the group has jumped +69 in MarketSmith's industry group rankings from #99 to #30, and TTMI has gained 24.8%, while BHE has picked up 15.7%.

This week all 4 electronics related groups finished in the top 50 of the trailing two week price performance list, and this combined with the improving performance of the Elec-Contract Mfg group (G3664) suggests it could be time to consider other names from the sector.

Maxwell Technologies (MXWL) is seeing very heavy accumulation and has posted very strong sales and EPS increases over the trailing 4 quarters. MXWL has an "A-" A/D rating and an up/down volume ratio of 1.8. Pivot point ~ 9.60 - 9.70 accompanied by above average volume.


Universal Display Corp. (OLED) recently broke higher in heavy volume through a nearly yearlong descending trend line after beating on both earnings (0.33 v. 0.27) and revenues (49.4M v. 37.95). Analyst's forecast FY '13 EPS +114%, FY '14 + 158%. A week prior to the announcement OLED fell on speculation that Samsung would purchase OLED competitor Novaled, so as with all stocks perform your due diligence.  


Building: The housing sector has been hammered as the Philadelphia Housing Index has fallen 18% from its high in mid May; over the same period of time the Bldg-Resident/Comml group (G1520) has fallen in MarketSmith's industry group rankings from #33 to #197! However, it's possible last week's FOMC minutes may have cooled interest rate fears enough that the sector can start to recover. Mueller Water Products (MWA) and PGT Inc. (PGTI) are two of the sectors stronger performers.

Mueller Water Products (MWA) is seeing very strong levels of accumulation. MWA has an "A-" A/D rating, and a 50 day up/down volume ratio of 1.5. Like some of the other stocks highlighted in this post, institutional sponsorship stagnated for 4 quarters before jumping 197 > 227 > 252 > 271 over the last 4. Analysts forecast FY '13 EPS +325%, and FY '14 +88%.


PGT Inc. (PGTI) is the nation's leading manufacturer and supplier of residential impact-resistant windows and doors. PGTI has been a stellar performer, gaining 156% for the year through its August 5 high of 11.69. Over the last 3 weeks it has pulled back 15% and has spent the last week trading just above its 50 day MA. Despite the pullback, PGTI still has a "B+" A/D rating and a 50 day up/down volume ratio of 2.1. PGTI has an "A" sponsorship rating, and institutional sponsorship has increased 97 > 105 > 125 > 162 over the past 4 quarters. PGTI looks like a buy at current levels.



Software: Software groups logged another solid week and the sector should remain one of great interest to readers.


Good luck with your trading this week!

No comments:

Post a Comment