Sunday, November 10, 2013

Sector & Group Rotation Notes – 11/10/13



As readers know the Sector Trends blog has been warning of market weakness since tweeting on October 22 the character of the market is changing, high RS stocks lagging, low RS stocks leading, nascent signs of defensive rotation. Not good signs.” The October 27 and November 3 blog posts shared detailed analysis showing the rotation to high cap dividend stocks, and the pummeling of former high relative strength growth leaders. That weakness culminated this past Thursday when the stronger than expected GDP number precipitated a taper-panic high volume 1.9% nose dive by the Nasdaq. The rout was on…

Until it wasn’t. Friday morning saw the Labor Department revise August and September jobs data higher, and October’s figure came in at 204K vs. an expectation of 120K. The markets roared higher in strong volume as the “good news is bad” crowd seemed to convert to believing “good news is good.”  

However, it’s always best to see what the data tells us.

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. The fact that the S&P 500 is outperforming almost all of the indexes over the trailing 5 weeks indicates a very narrow market, but the shorter time periods suggest it is broadening once again.

Index
1 Week Gain
2 Week Gain
3 Week Gain
5 Week Gain
13 Week Gain
26 Week Gain
Dow Jones Transportation Index
-0.4%
0.1%
2.7%
6.2%
8.3%
10.1%
S&P 500
0.5%
0.6%
1.5%
4.7%
4.7%
8.4%
KBW Large Cap Bank Index
2.5%
1.6%
0.6%
4.7%
0.9%
12.6%
Philadelphia Utility Index
-0.2%
-0.6%
1.2%
4.6%
-0.7%
-3.3%
DJIA
0.9%
1.2%
2.4%
4.6%
2.2%
4.3%
Russell 1000 Energy Index
0.8%
0.4%
1.4%
3.6%
5.3%
7.9%
Pboe Oil Service Index
1.6%
1.8%
0.0%
3.5%
9.3%
11.0%
Cboe Technology Index
0.6%
0.6%
1.4%
3.1%
5.8%
8.3%
Nasdaq Composite
-0.1%
-0.6%
0.1%
2.9%
7.1%
14.0%
Philadelphia Gold/Silver Index
0.5%
-7.3%
0.3%
2.4%
-5.3%
-14.8%
Russell 2000
0.4%
-1.6%
-1.3%
2.0%
4.9%
12.8%
Philadelphia Semiconductor Index
-0.9%
0.9%
-1.1%
0.7%
6.2%
7.5%
Philadelphia Housing Index
-2.5%
-5.8%
-1.7%
0.1%
2.7%
-13.0%

The table below lists trailing price performance data for 2,080 of the most liquid stocks in the market today. The left side measures trailing performance by current relative strength tier, while the right side measures trailing performance by the stocks relative strength tier as of 10/5/13 (just prior to the government shut down and resulting market chaos). As the table demonstrates there is a large performance differential between the two tier groupings over the trailing 1 month time period – a significant number of former high relative strength leaders have been pounded, and the data suggests they aren’t bouncing back. It’s best to focus on where stocks are going, not on where they have been.


Price Performance


Price Performance
RS Rank as of 11/8/13
Friday 11/8/13
Week ending 11/8/13
Month ending 11/8/13

RS Rank as of 10/5/13
Friday 11/8/13
Week ending 11/8/13
Month ending 11/8/13
90 - 99
3.4
1.9
12.6

90 -99
2.6
-0.7
3.1
80 - 89
2.2
1.3
8.7

80 - 89
2.1
0.2
5.7
50 - 79
1.5
0.1
5.2

50 - 79
1.4
0.3
5.7
20 - 49
0.4
-0.8
2.4

20 - 49
0.8
-0.3
4.3
1 - 19
0.3
-2.7
-4.6

1 - 19
0.6
-0.6
2.2
Grand Total
1.4
-0.1
4.6

Grand Total
1.4
-0.1
4.6

The past two week's blog posts have chronicled the market's shift towards large cap dividend stocks. This table is pulled from a wider data set of ~ 3400 stocks (price > $3, market cap > 100M, 50 day avg. vol. > 30K, no ETFs). Sorting performance by market cap shows that while large cap still leads over the trailing month, for the week and for this past Friday small caps rebounded.


Price Performance

Friday 11/8/13
Week ending 11/8/13
Month ending 11/8/13
Small Cap
1.8
0.5
5.1
Mid Cap
1.3
-0.3
5.2
Micro Cap
1.3
0.1
2.9
Large Cap
1.1
-0.1
5.5
Grand Total
1.5
0.1
4.9

This table is pulled from the same data set and examines trailing performance sorted by dividend yield. While non-dividend paying stocks performed well on Friday, it looks like the sweet spot may still be for names with a modest yield.


Price Performance
Yield
Friday 11/8/13
Week ending 11/8/13
Month ending 11/8/13
0
1.9
0.3
4.1
0.1-1%
1.6
0.4
7.0
1-3%
1.6
0.5
6.8
3-5%
0.6
-0.5
4.7
5-8%
-0.3
-1.7
2.7
8%+
-0.2
-1.7
1.5
Grand Total
1.5
0.1
4.9

Economic data last week was mostly strong. Factory orders data released Monday came in at -0.1%, slightly below the 0%-2% consensus, but Tuesday's ISM Non-manufacturing index came in at 55.5 vs. a consensus expectation of 54.5 suggesting improved momentum in ongoing activity. The big news came on Thursday when third quarter GDP came in strong at 2.8% vs. a 2.0% consensus followed by the Friday jobs report that topped expectations showing a non-farm M/M change of 204K vs. 120K consensus. Personal income in outlays showed a solid 0.5% M/M increase although consumer confidence slipped to 72, below a consensus estimate of 75 and its 4th consecutive monthly decline.

This past week over 1250 companies reported earnings results, including Liveperson +22%, Blucora +20%, Demandware +17%, TempurSealy +15% and Opentable +12%. Notable decliners included Nationstar Mortgage -28%, Rocket Fuel -19%, AVG Technologies -15%, Tesla -15%, and SolarCity -9%. Over 580 companies report next week including Walmart, Cisco, Arkansas Best, Ampio Pharmaceuticals,  TJX, Ross Stores, Kohls, Dollar Tree, and Transdigm. Next week is also a heavy reporting week for China based ADRs with 61 of 168 (36%) reporting, including Netease, Sina, Vipshop Holdings, Youku Tudou, Wuxi Pharmatech, Home Inns & Htls Mgt, Spreadtrum and Nq Mobile.

A broader look at industry group performance shows technology oriented groups performing poorly over the trailing 3 and 5 week time periods, while defensively oriented groups remain slightly elevated. 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)
7
6
7
4
10
5
# in the bottom 50 groups (out of 197)
5
5
8
10
6
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)
8
6
4
5
9
10
# in the bottom 50 groups (out of 197)
5
10
12
14
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)
11
7
8
12
5
4
# in the bottom 50 groups (out of 197)
5
1
2
4
13
7

Summary: For the past few weeks the blog has warned of the risk to high relative strength stocks, and of likely market weakness. It appears those risks may have resolved themselves this past Thursday and Friday, with the market prepared to move forward with a new group of leaders. The data listed in the tables above demonstrates the extent of the rotation, and suggests current high RS stocks with a modest yield should outperform.

Industry Group Performance:

Banks: Banking was the top performing sector last week, led by the Banks-Super Regional group +3.4%, and followed by Banks-Midwest +3.4%, Banks-West/Southwest +2.9%, Banks-Southeast +2.8%, and Banks-Northeast +1.8%. These groups all rank in the top 66 on the trailing 5 week price performance list and have seen their MarketSmith industry group ranks increase by an average +31 over the same 5 week period.

Autos: Last week’s analysis pointed out the weakening in auto related groups and there was little relief last week. Tesla impacted the Auto Manufacturers group which fell -11.5%, but all 5 auto related groups rank in  the bottom 25 of the trailing two week price performance list (compared to all 197 groups) and the  groups have seen their MarketSmith industry group rank fall anywhere from -31 to -78 over the trailing 5 weeks.

The Retail-Whlsle-Automobile group has also been hit hard, ranking #190 on the trailing 5 week price performance list with a -7.5% loss, and dropping -131 over the same time period in MarketSmith’s industry group ranks to #163 overall.

Biotechs: The Medical-Biomed/Biotech group has sold off hard, down -3% for the week and ranking #194 on the trailing 5 week price performance list with an -11.7% loss. Although the group bounced +3% on Friday, volume was modest. Now that the group is near its 200 DMA it may begin to consolidate.

Medical: Healthcare related groups logged another strong week with 7 groups ranked in the top 50 of the trailing 1 week price performance lists vs. only two in the bottom 50 (biotech & hospitals). 

Steel: Another strong week for the Steel-Producers group, +4.7% (#4). The group has now jumped +125 in MarketSmith's industry group ranks over the past 9 weeks to #36 overall. 

The Steel-Specialty Alloys group is also participating, +15.8% over the trailing 13 weeks (#7), and jumping +130 in MarketSmith's industry group ranks over the same time period to its current rank of #57.

Energy: Although still ranked #5 in MarketSmith’s industry group ranks, the Oil&Gas-U S Expl&Prod group had a tough week falling -1.8% (#169). This may have been in part due to the rapprochement between the 0bama administration and Iran; but according to the Sunday NY Times “marathon talks between major powers and Iran failed to produce a deal to freeze its nuclear program, puncturing days of feverish anticipation.” Worth watching to see it begins to recover next week. (And by all means lets hope our dear leader doesn't have a fever!)

The Oil&Gas-Drilling group ranks #109 in MarketSmith’s industry group ranks but gained 2.7% last week (#19), and is up 2% over the trailing two weeks (#29). This group could also be worth a look.

                                                                  ***********

All data and charts displayed here are the property of MarketSmith, and are published here with their permission. 

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. 

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