Sunday, December 8, 2013

Food & Agriculture - 12/8/13



Market Overview: Through Thursday of last week the markets were modestly lower with the Nasdaq -0.7%, the S&P 500 -1.2%, DJIA -1.6% and the Russell 2000 -1.8%. On Friday the markets moved sharply higher but in weak volume; Fridays' Nasdaq volume was -9% from Thursday, DJIA and S&P 500 volume was -4%, and the Russell 2000's volume was flat.

Price action Friday and for the week favored large cap stocks over mid and small cap categories, a change from performance over the trailing month:


Price Performance

Friday
Week Ending 12/6
Month Ending 12/6
Large Cap
1.13
-0.30
0.96
Mid Cap
0.71
-0.30
1.71
Micro Cap
0.65
-1.58
3.71
Small Cap
0.59
-1.13
4.04
Grand Total
0.73
-0.83
2.78

Friday's performance also suggested a preference for yield, although this is more likely a byproduct of the move to larger capitalization issues:


Price Performance
Yield:
Friday
Week Ending 12/6
Month Ending 12/6
0
0.48
-0.88
4.49
0.1-1%
1.01
-0.59
3.35
1-3%
1.13
-0.42
2.73
3-5%
0.93
-0.75
-0.50
5-8%
0.63
-1.81
-2.52
8+
0.15
-2.37
-3.50
Grand Total
0.73
-0.83
2.78

Industry group price performance suggested modest outperformance by defensively oriented groups with 14 such groups finishing in the top 50 of the trailing 1 week price performance list, and only 5 in the bottom 50.

Summary: At first glance Friday's market performance suggests further short term upside, but after a closer look the weak volume, rotation to large cap issues, and somewhat defensive performance of the industry groups makes a period of consolidation seem like a more likely outcome.

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Industry Group Performance:

Medical: The October 20 blog post noticed the improvement in medical related industry groups writing "Industry groups from the Healthcare sector have made a pronounced move over the past 3 weeks... this performance indicates its worth giving names from the sector a look". As of October 20 there were only 3 groups ranked in the top 40 groups overall, and 2 groups in the bottom 40. As of this weekend there are now 5 groups in the top 40, and none in the bottom 40. This sector continues to look good going forward.

Food: Two weeks ago the Sector Trends blog wrote the following:

"This sector has been pounded. The Food-Meat Products group is the highest ranked group from this sector with a MarketSmith industry group rank of 144, and the average MarketSmith industry group rank for the sector is 158.

However, it appears the sector may have bottomed. The Food-Meat Products group ranks #26 on the trailing 5 week price performance list with a 6.3% gain, and the sector average on the trailing 5 week price performance list is 86, vs. an average of 147 on the trailing 13 week list."

According to the blog's analysis the food sector was the top performing sector last week with a 0.91% gain, followed by  the chemical sector +0.23, and medical +0.12%. All 7 groups from the sector finished in the top 50 of the trailing 1 week price performance list (out of 197 groups), with weekly price performance ranging from +0.5% to +2.2%.

Groups from this sector are on the move and look like they will continue to outperform.

Agriculture: Agriculture related groups have been laggards, with poor MarketSmith industry group ranks: Chemicals-Agricultural #191, Machinery-Farm #183, and the Agricultural Operations group ranks #127. It's been almost a year since a group from this sector has enjoyed an industry group rank in the top 50.

That could be beginning to change. Despite its poor rank of #183, the Machinery-Farm ranks #39 on the trailing 5 week price performance list with a 5.9% gain; and last week all three agriculture related groups ranking in the top 40 of the trailing 1 week price performance list.

CF Industries (CF) gained 7.2% for the week and broke higher out of a cup & handle pattern that began forming last February. On Wednesday CF jumped 10% after announcing it was evaluating MLP and MLP-like structures. CF has an attractive weekly chart.

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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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