Sunday, December 29, 2013

Sector/Group Rotation Notes - 12/29/13



Due to holiday travel there’s only time for some brief observations this week:

It was a solid week for the market with the major indexes gaining ~ 1.3% for the week. Economic data continued to be positive with durable goods orders coming in at M/M +3.5% vs. a consensus expectation of +1.5%, and December consumer sentiment rose higher with a reading of 82.5 vs. November’s 75.1. The Richmond Fed manufacturing index came in very strong at 13 vs. a consensus expectation of 10.  New home sales for November came in at 464K vs. 450K consensus, and the September and October readings were revised sharply higher. New home prices gained 4.5% for the month, and have gained 10.6% for the year, suggesting builders are gaining pricing power.

The yield on the 10 year U.S. Treasury has increased 26 basis points over the past month to 3%. If this rate of increase were to continue into early 2014 it could become problematic for the market.

                                            **********************

Industry Group Performance:

Housing: Last week’s analysis showed the Philadelphia Housing Index breaking higher out of a 3 month ascending triangle pattern. The move continued this past week as he index gained an additional 3.7%. Five housing related industry groups ranked in the top 50 on the trailing 1 week price performance list, led by the Bldg-Resident/Comml group which came in at #5 with a 4.3% gain.

Standard Pacific Corp (SPF) was highlighted last week and gained 5.6%, followed by MTH +3%, AMWD +3%, EXP +2.8%, TPH -0.6%, and HW -1.5%. All of these charts continue to look attractive, and TPH especially so given its robust quarterly results and strong earnings forecasts.

Mining: Mining was the top performing sector for the week gaining 4.6%. The Mining-Metal Ores group is on a tear ranking #11 on the trailing 5 week price performance list with a 9.6% gain, and over the last 2 weeks has jumped +51 in MarketSmith’s industry group rankings to #108. The Mining-Gold/Silver/Gems group ranked #4 in price performance last week with a 4.5% gain, but still lags far behind with a MarketSmith industry group rank of #195.

Media: Media related groups had a very strong week with all 5 groups ranking in the top 36 on the trailing 1 week price performance list, and the blog calculates media was the second best performing sector last week with a 3.8% gain. Two weeks ago the sector had only 1 industry group ranked in the top 50 of MarketSmith’s industry group rankings, now there are 3 groups ranked in the top 40.

                                           **********************

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. 

Sunday, December 22, 2013

Sector/Group Rotation Notes - 12/22/13



Last week's market summary stated "Although the market pulled back last week... this is but a temporary pause before the market resumes moving higher, most likely after the Fed meets this coming Tuesday and Wednesday."

Can you nail it any better than that?

Last week the markets surged higher after the Fed announced it would begin scaling back their purchases in mild increments. For the week the Russell 2000 gained 3.6%, DJIA 3.0%, the Nasdaq 2.6%, and the S&P 500 2.4%. In addition to the Fed announcement market enthusiasm was spurred by more positive economic data: industrial production for November jumped 1.1%, above the consensus range of 0.2% - 1%, and on Friday annualized real GDP growth was unexpectedly revised sharply higher from 3.6% to 4.1%.

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. Industry group performance indicated a strong preference for technology last week, and continued weakness in defensively oriented issues.

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

28 Technology Oriented Groups:
1 wk
2 wk
3 wk
5 wk
13 wk
26 wk
# in the top 50 groups (out of 197)
18
11
12
7
7
12
# in the bottom 50 groups (out of 197)
2
2
3
4
10
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)
4
2
3
5
4
3
# in the bottom 50 groups (out of 197)
12
19
13
13
6
14

The blog's calculations of sector performance validate the preference for tech; the blog calculates the top performing sectors last week were, in order: Software +5.2%, Computer +5.1%, Internet +4.7%, and Semis +4.5%.

Summary: Last week's market surge indicates the path of least resistance  is higher. All good things come to an end at some point; but this blog strives to make data driven - not opinion driven - analyses and right now the data indicates this market is moving higher.

                                            **********************

Industry Group Performance:

Software: 

As noted above software related stocks had a monster week with 8 of 10 groups ranked in the top 50 based on trailing 1 week price performance. This performance is detailed in the table below, sorted by 1 week price performance:



Price Performance

MarketSmith
Industry Group
Symb.
1 Week Gain
1 Week Rank

Ind. Group Rank
1 week Rank Δ
Comp Sftwr-Spec Enterprs
G2761
6.5%
6

59
-2
Computer Sftwr-Edu/Media
G3357
6.3%
7

155
+11
Computer Sftwr-Enterprse
G3583
5.8%
10

33
-5
Computer Sftwr-Desktop
G3270
5.7%
12

127
-22
Computer Sftwr-Gaming
G3584
5.1%
19

147
+4
Computer Sftwr-Security
G3220
4.6%
25

108
-11
Computer Sftwr-Design
G3575
3.9%
37

78
+16
Computer Sftwr-Financial
G2821
3.8%
41

32
-3
Computer Sftwr-Database
G3582
3.4%
52

74
-5
Computer Sftwr-Medical
G3069
1.5%
152

44
-35

The Computer Sftwr-Medical looks to be rolling off the top of the MarketSmith rankings, but selections from the other groups should perform well.

Asiainfo Linkage (ASIA) is a Chinese software company out of the enterprise software group. ASIA has an "A" sponsorship rating, and a solid A/D rating of "B". ASIA is a Zack's #1 ranked stock, and looks ready move higher out of 40 week flat base on its weekly chart, with the last 3 weeks representing a 3 weeks tight. As with all Chinese stocks, buyer beware and do your due diligence. Weekly chart:

 
Interactive Intelligence (ININ) has seen solid increases in both sales and EPS over the past 3 quarters, as well as a 195 > 215 > 229 > 262 increase in institutional sponsorship over the past 4 quarters. ININ is seeing some positive volume spikes as it moves off the bottom of a 6 week flat base.



Medidata Solutions (MDSO) has a "B+" A/D rating, and an "A" sponsorship rating. Institutional sponsorship has increased 210 > 239 > 257 > 310 over the last 4 quarters, and EPS estimates were recently revised higher. RS 97, EPS 97. MDSO has a 62.57 pivot out of a cup & handle base.



Computer: With the exception of the Apple dominated Computer-Hardware/Perip group, computer related industry groups also had a very strong week. This performance is detailed in the table below, sorted by 1 week price performance:




Price Performance

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

Ind. Group Rank
1 Week Rank Δ
Computer-Data Storage
G3578
18
12.8%
1

156
+15
Computer-Integrated Syst
G1004
14
4.3%
30

110
+17
Computer-Networking
G3574
30
3.9%
39

151
-3
Computer-Hardware/Perip
G3580
18
0.8%
179

22
-5

Out of this group MRCY has an interesting chart, showing strong accumulation with a 50 day up/down volume ratio 2.0, and 25 day ratio of 2.6, yet just 4% past its pivot out of a double bottom base.


ALLT also looks interesting. +9% last week and has an "A" sponsorship grade. 23% off its 52 week high but has FY '14 EPS forecast +330%.


Housing: The Philadelphia Housing Index surged higher last week gaining 4.2% and breaking higher out of a 3 month ascending triangle:


Meritage Homes (MTH) looks ready to move higher with a break of this descending trend line. Strong earnings, sales and future EPS estimates, A/D "A", sponsorship rating "A".


American Woodmark (AMWD) also looks very attractive. A cut & paste of what was written for MTH: Strong earnings, sales and future EPS estimates, A/D "A", sponsorship rating "A".


Headwaters (HW) is another name from the sector showing very strong accumulation while in a flat base, and just now moving out of a 3 weeks tight pattern:


Eagle Materials (EXP) was highlighted in the May 26 blog post at 75.24 and has been basing ever since. If you agree with the sector analysis EXP looks interesting bumping along the bottom of this 5 week channel, especially given those 3 volume spikes over the last 6 days:


TRI Pointe Homes (TPH) has monster quarterly sales and EPS, and future EPS estimates to match.


Standard Pacific Corp. (SPF) is showing heavy accumulation with a 50 day up/down volume ratio 1.6, but a 25 day ratio of 3.1 all while in a tight BB squeeze. Check out the strong quarterly sales and EPS results on the chart below.



                                             **********************

Note: The blog will probably take next weekend off, hence the next publish date would be Sunday, January 5, 2014.

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.