Sunday, February 9, 2014

Hiatus - 2/9/14

As mentioned last week (2/2/14) I'm taking a hiatus from blogging. In the mean time I'll be sharing my ideas on StockTwits and Twitter more frequently; if you're interested in following the links to do so are on the right side of this page.

I will return to blogging once I've decided on a less time intensive format.


Sunday, February 2, 2014

Sector/Group Rotation Notes - 2/2/14



It was a volatile week in the markets with the Nasdaq falling -1.9% Monday through Wednesday before ripping higher on Thursday + 1.8%. Friday the Nasdaq gapped down -1.4% before working higher to turn positive ~ 2:30 PM but then pull back to end the day -0.5%. The Nasdaq finished the week -0.6%, but if you factor out AAPL's -8.3% weekly loss the index would have actually gained ~ 0.2%.

Economic data for the week was mixed. New home sales data released Monday missed consensus, 414K vs. 450K.  Durable goods orders released Tuesday missed badly, -4.35% vs. 1.6% consensus, the only bright spot being that this tends to be a volatile month-to-month indicator. Thursday's release of Q4 GDP showed a 3.2% increase vs. 3% consensus, while the pending home sales index showed a M/M decline of -8.7%.  On Friday Chicago PMI edged consensus expectations at 59.6 vs. 59.5, and consumer sentiment was healthy with a reading of 81.2.

Last week 1,368 reported earnings with winners including Under Armour +29.5%, Facebook +14.9%, Chipotle +12.1% and Google +5.1%. Large cap losers included Apple -8.3%, Amazon -7.5%, Boeing -8.3%, Celgene -5.8%, Altria -5.6%, and Ford -5.5%. Next week 606 companies release results including Disney, Gilead, Baidu, Teva, Twitter, Linkedin, Himax, Yelp, and Tableau Software.

Weekly price performance of technology, commodity and defensively oriented groups was uninformative with all three categories providing equivalent numbers of groups in the top and bottom performing quartiles.

Summary: Despite increased volatility losses in the market last week were modest with the average stock declining 0.6%. Despite the decline, many stocks normally viewed as defensive fell, while more aggressive growth oriented stocks actually gained. This can be seen in weekly sector performance where Alcohol/Tobacco stocks fell an average of -2.3%, and Food & Beverage stocks fell -1.3% while the average Software stock gained 0.3% and the average Internet stock picked up 0.9%. Many seem to be expecting a large pullback; the blog does not share this view and expects the market to continue to offer solid opportunity for those investors positioned in the right groups and sectors.

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Industry Group Performance:

Builders: Six weeks ago in the December 22 analysis the blog pointed out the improving situation in housing, noting that the Philadelphia Housing Index had broken higher out of a 3 month ascending triangle. Since that time the Bldg-Resident/Comml industry group has been the sixth best performing industry group logging a 12% gain, most of which occurred just last week as it finished the week #1 with an 11.5% gain.  Over the past week the group jumped +70 in MarketSmith's industry group ranks from #111 to #41.

Most of last week's gain was the result of superior earnings results, with NVR gaining +14.4% for the week, followed by DHI +12.5%, WLH +9.2%, and PHM +7.9%.

Meritage Homes (MTH) was featured in the 12/22 blog post but was held back by a primary offering that occurred January 10. MTH has solid quarterly sales & EPS results, and analysts forecast that to continue estimating FY '14 EPS +28%. MTH is scheduled to report Wednesday 2/5.


Internet: As readers know the blog has been highlighting the improving strength of the Internet-Network Solutions industry group since the January 5 blog post. Since then the group has gained 7.3% in price and has jumped +69 in MarketSmith's industry group rankings from #141 to #72.

Gigamon (GIMO) is getting mentioned here for the 5th consecutive week... On Friday GIMO was upgraded by GS and given a $38 target, the GS analyst also suggested GIMO could be a takeover target. GIMO reports next Tuesday with analysts expecting earnings of $0.12 per share on sales of $41.9 million.

Software: Software related groups continue to exhibit superior relative strength. 5 of 10 software groups finished the week ranked in top 50 of all groups on the trailing 1-week price performance list, and 7 of 10 are ranked in the top 50 on the trailing 3 week list. The sector also enjoys seven groups ranked in the top 50 of MarketSmith's industry group rankings.

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Note: I have decided to take a hiatus from publishing for an undetermined period of time. To put it simply, the amount of time required to format and publish the analysis has become burdensome (at least in the short term), and would be more profitably put to other uses. If you have found this work useful I will continue to share observations on Stock Twits and Twitter, you may want to consider following if you have not already done so (links are at the top of this page on the right).

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, January 26, 2014

Sector/Group Rotation Notes - 1/26/14



The Nasdaq hit another 13 year high on Wednesday before selling off hard Thursday and Friday. Traders woke up Thursday to news that China's Purchasing Managers index had fallen to 49.6 from a reading of 50.5 in December (a number below 50 indicates contraction). This news, combined with concern over emerging market currencies precipitated the global equity sell off. For the week the DJIA fell -3.5%, followed by the S&P 500 -2.6%, the Russell 2000 -2.1%, and the Nasdaq -1.7%.

Economic data this past week was light. On Thursday existing home sales came in just slightly below the consensus average at 4.87M vs. 4.90, and the PMI manufacturing index flash report missed consensus at 53.7 vs. 55.0 consensus. The Kansas City manufacturing index rebounded moderately from December, mirroring the improvement seen in the NY Fed's reading last week.  

Next week sees a heavier schedule of releases. Key data includes new home sales 10 AM Monday, durable goods orders 8:30 AM Tuesday, the FOMC meeting announcement 2 PM Wednesday, and GDP and jobless claims 8:30 AM Thursday.

Numerous companies responded positively to their earnings releases last week including weekly gains for Netflix of +17%, Netscout +15.5, Logitech +13.8%, Open Text +11%, and F 5 Networks +8.2%. Losers on the week included Advanced Micro Devices -17%, Intl Game Technology -14.8%, Kansas City Southern -15.2%, and Freeport Mcmrn Cpr&Gld -9.5%.

799 companies release earnings results next week including Illumina, Arkansas Best, Natus Medical, Constant Contact, Harmon Industries, and Align Technology. Four recently hot China based companies also report: 500.com, 58.com, Sungy Mobile and Montage Technology.

Weekly price performance of technology, commodity and defensively oriented groups was uninformative with technology oriented and defensively oriented groups providing neutral readings for the week. Commodity oriented groups leaned on the negative side, with only 4 such groups ranking in the top 50 groups, and 15 in the bottom 50. Interestingly, technology oriented groups also held up well when measured over the 2 day sell off at the end of the week with 5 groups in the top 50 and only 6 in the bottom 50.

The market is becoming more sensitive to sector selection. As of January 4 the blog calculates that over the trailing 3 months there were 16 sectors with +10% gains and only 1 sector showing a loss. As of Wednesday January 22 (before last week's sell off) there were only 6 sectors showing +10% gains and 4 sectors showing losses.

Summary: Last week the blog wrote "This is a very strong market with buyers tripping over themselves to get positions in the technology and healthcare sectors. Positive economic data combined with weakness in defensive issues points to a continuation of the trend." Despite last week's sell off the weekly chart of the Nasdaq posted below shows the trend intact, and on Wednesday an all-stock advance decline line followed by the blog hit a new high, behavior that contradicts the idea of a sustained market pullback. Last week's performance in technology oriented groups suggests there will continue to be opportunities in that sector of the market, and the blog expects the market to continue to offer opportunity for those investors positioned in the right groups and sectors. That said, clearly the market is not as strong as it was 4 weeks ago and could be entering a period of consolidation. Friday's action resulted in a market that's oversold so look for bounce early in the week.

 
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Industry Group Performance:

Internet: The January 5 blog post pointed out the improving strength of the Internet-Network Solutions group writing the "group has been a laggard group with a MarketSmith industry group rank of #141. However, that could be changing as the group ranks #23 on the trailing 5 week price performance list with a 5.3% gain." Since writing that 3 weeks ago Internet-Network Solutions  has been the 6th best performing group with a 7.5% gain, last week it was the 2nd best performing industry group with 2.5% gain (Leisure-Movies & Related was #1, +5.1%, powered higher by Netflix' earnings beat). Over the same 3 week period the group's MarketSmith industry group rank has improved +37 to #104.

This will mark the 4th consecutive week the blog has highlighted Gigamon (GIMO). Last week's blog pointed out the 3 weeks tight pattern on its weekly chart and for the week GIMO gained 6.1% in volume 56% above average (70% above average if you adjust for the 4 day week). Best of all that 6.1% gain occurred Thursday & Friday while the rest of the market was in freefall. On Thursday GIMO gained 3.4% in volume 85% above average, and Friday it gained 4.6% in volume 150% above average.



Software: Software has been a strong sector and despite last week's sell off continues to boast 6 of 10 groups in the top 40 of the trailing 2 and 3 week price performance lists. Five software related groups have MarketSmith industry group ranks in the top 50, and 9 of 10 are in the top 60.

Realpage (RP) was featured last week and pulled back -0.9% in below average volume. RP enjoys a ROE of 15%, EPS growth rate of 76%, and EPS estimates were recently revised higher with FY '13 EPS estimates +28%, and FY '14 +27%. While the 50 day up/down volume ratio is only 1.0, the 25 day ratio of 1.5 indicates shorter term accumulation. RP looks attractive with a break of the descending trend line seen in the chart below.


Tableau Software (DATA) is another stock highlighted last week; despite the sell off DATA still gained 3.3% for the week even after giving up 4.6% on Friday. DATA is part of the Computer Sftwr-Database group which ranked #14 for the week with a 0.6% gain.


Marketo (MKTO) is a chart the blog tweeted on Jan 12 @ 41.10. MKTO has picked up 4% since then, and spent Thursday and Friday of last week pulling back in mild volume -55% to average over the two days. MKTO's sales growth for the last 4 quarters has been +60% each quarter.


Rally Software (RALY) builds cloud based software that helps companies implement Agile/Lean management strategies. RALY IPO'd in April and had a nice run from 18 to 33 before correcting back to a low of 15.46. Since hitting that low on December 18 RALY rallied to a high of 21.50 on January 7th and has traded in a tight channel since. RALY has a "B+" A/D rating, and the 25 day up/down volume ratio of 2.1 doubles up on the 50 day ratio of 1.0. The Bollinger Bands are tightening up into a volatility squeeze suggesting price movement in the near future.  Set your alert ~ 21.45.


The Computer Sftwr-Gaming group was the 11th best performing group last week gaining 0.9%. Most of this gain was result of Shanda Games (GAME) 18% weekly gain in volume 285% above average. GAME, a China based company, was completely unaffected by the miss in China's PMI as well as the mini accounting scandal that seemed to impact some Chinese names. GAME has seen three positive analyst EPS revisions in the last 60 days.


Energy: The Oil&Gas-U S Expl&Prod group has been an underperformer ranking #188 on the trailing 13 week price performance list with a -8.9% loss. That may be beginning to change as last week the group improved after news of falling stockpiles. The group finished the week with 0.6% gain, 13th among all groups, but what really caught attention was the number of 5%+ moves made by individual stocks early in the week: 13 on Tuesday and 9 more on Wednesday. Given the weakness in the group this could be an indication of bottoming.  Admittedly this is a thin reed upon which to base a thesis of group rotation, but the group has a large collection of stocks with robust EPS estimates for both this year and next, so it's a possibility worth watching for.

One stock out of the group the blog finds interesting is Linn Co. (LNCO) which trades as the equity arm of LINN Energy LLC (LINE). LNCO's sole purpose is to own LINN units (LINE) and yields 8.9%; owning LINN units through LNCO relieves the shareholder of the tax reporting requirements of owning LINN units directly. LNCO shares are showing significant accumulation with an A/D rating of "A-" and a 50 day up/down volume ratio of 1.3, while analysts forecast FY '14 EPS +188%.



Banks: There's a clear dichotomy in the industry group performance of the banking sector, with money center (GS, JPM, etc.) and foreign banks getting hit while the super regional and regional banks putter along mostly unscathed. The table below demonstrates this showing the trailing week's price performance for industry groups in the banking sector:
                       

Price Performance

MarketSmith
Industry Group
1 Week Gain
1 Week Rank

Ind. Group Rank
1 Wk Rank Δ
Banks-Super Regional
1.0%
9

97
21
Banks-Northeast
0.5%
17

98
28
Banks-West/Southwest
-0.2%
26

59
10
Banks-Midwest
-0.3%
31

108
-12
Banks-Southeast
-0.8%
38

121
-2
Banks-Foreign
-3.3%
148

143
-9
Banks-Money Center
-3.4%
154

168
-22


Mining: For the last few weeks the blog has discussed the improving strength in the mining sector. Last week the Mining-Metal Ores group took a pronounced step backwards on the news of China's PMI contraction, falling -4.7% for the week. The Mining-Gold/Silver/Gems group was the 4th best performing group for the week gaining +1.5%.

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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. 

Sunday, January 19, 2014

Sector/Group Rotation Notes - 1/19/14


Last week the Sector Trends blog summarized the market condition as follows: The indexes are basically static as they work off an overbought condition, picking up the occasional distribution day as this happens. Don't be fooled by this action, this market is very strong with serious money being made in the right sectors and names.”

As if to demonstrate the accuracy of that statement, on Monday the markets started the week with the Nasdaq falling 1.5% in volume 27% above average. Suddenly the uptrend was under pressure and the world was ending! Until Tuesday, when buyers returned en masse… from Monday’s close through the end of the week the Nasdaq gained a solid 2% in volume ~ 14% above average, and closed Thursday at a new 13 year high.

Some may wonder if distribution days matter any longer. The blog’s view is that what matters is how the market reacts to distribution days. There's a well documented correlation between clustered distribution days and subsequent market weakness, so most of the time the market reacts by moving lower.

So what does it mean when that doesn’t happen? What does it mean when the model is suddenly better at picking buy points than sell points? Is the model broken? The blog’s view is that it’s not broken but just ineffective because this market is so strong. It will doubtless work again in the future when this bull ends (whenever that is), but in the mean time see this market for what it is (very strong) and don’t let confirmation bias trick you into dumping your stocks every time there’s a 1.5% sell off.

Last week’s economic data continued to reflect an improving economy. Tuesday's release of December's retail sales figures which were surprisingly solid showing a gain of 0.2% vs. a consensus expectation of 0.0%; less autos the gain was 0.7% vs. an expected gain of 0.4%. December business inventories came in higher than expected gaining 0.4% M/M vs. a 0.3% consensus, but remained in line with sales. Wednesday’s Empire State manufacturing survey came in at a very strong 12.5 vs. a consensus of 3.3 indicating strong growth in a region of the country that has been lagging. Thursday’s consumer price index remained tame, and jobless claims were inline while the housing market index suggested builder confidence remains high. Friday’s housing starts exceeded consensus while permits slipped 3%, but the slip in permits seems to have been the result of poor weather.

Last week the blog noted that technology oriented groups were outperforming defensively oriented groups, and the uptick in the performance of defensive groups was related to a rush of buyers moving into the healthcare sector. This past week technology oriented groups dominated with 16 tech related groups ranking in the top 50 of the trailing 1 week price performance list, while only 1 group finished in the bottom 50 (Computer Software-Gaming, -2.2%). This strong performance from technology oriented groups suggests continued gains and is a positive for the health of the market.

Earnings season is upon us and will be a driver of results going forward.  Last week 88 companies reported gaining an average of 1.6% for the week. Of those 88 companies 45 were from the banking sector and those gained 0.3% for the week. Using only these 45 reporting companies to calculate performance Banks-Super Regional gained +3.1% (5 reports), followed by Banks-Northeast +0.9% (10 reports), Banks-Money Center +0.4% (7 reports), Banks-Midwest +0.4% (8 reports), Banks-West/Southwest -0.9% (3 reports), and Banks-Southeast -1.1% (12 reports).

Next  week 299 companies report, 97 of these from the banking sector. High relative strength names reporting include Netflix, Forest Labs, Delta, American Airlines, Southwest Airlines, and Invensense. Large cap names reporting include Microsoft, IBM, Verizon, McDonalds, Ebay, Starbucks, Halliburton, and Freeport McMoRan.

Summary: This is a very strong market with buyers tripping over themselves to get positions in the technology and healthcare sectors. Positive economic data combined with weakness in defensive issues points to a continuation of the trend.

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Industry Group Performance:

Medical: Last week’s analysis described the explosion in the Medical sector, and that continued this past week as the sector ranked #2 picking up 3.6%, with 11 of the 14 medical related industry groups ranking in the top 50 of the trailing 2 and 3 week price performance lists. Three of the sector's stocks highlighted by the blog last Sunday had stellar weeks with STML +44.3%, KPTI +25.2%, and CADX +14%.

Xenoport (XNPT) was mentioned last week and still appears to have potential. XNPT is under heavy accumulation, with an "A+" A/D rank, 50 day up/down volume of 1.9, and 25 day up/down of 3.8. XNPT also enjoys an "A" sponsorship rank. XNPT has faded back to its 6.50 pivot in low volume.



Supernus Pharmaceuticals (SUPN) is seeing strong accumulation and has just recently emerged out of a 7 month channel. A/D is “B+”, 50 day up/down volume 1.8, 25 day 3.0, and SUPN enjoys an “A” sponsorship rank.



Software: It was another strong week for the software sector with 7 of 10 software related industry groups ranking in the top 40 of the trailing 1 week price performance list, and numerous groups making significant moves higher in MarketSmith’s industry group rankings. There are now 6 software related groups with MarketSmith industry group rankings in the top 50, and it appears this will be increasing. The only group that seems out of favor is the Computer Sftwr-Gaming group, which lost -2.2% last week and fell -38 in MarketSmith’s rankings to #107.

Tableau Software (DATA) has set up in a cup & handle pattern and broke out Thursday gaining 3.3%, but in volume only 10% above average. DATA is seeing some accumulation however, the A/D rank is "A-", and the 25 day up/down volume ratio is at 1.25. Institutional sponsorship increased from 232 to 260 funds over the last quarter, and sponsorship quality is ranked as a "B". DATA's last quarter results were stellar with EPS +300%, and sales +90%. DATA reports earnings 2/4/14.


Guidewire (GWRE) moved out of a double bottom base on Friday gaining 2.3% in volume 29% above average, it's now 2% past the pivot. GWRE is under heavy accumulation with a 25 day up/down volume ratio of 2.2, a 50 day ratio of 1.4, and A/D rating of "B". Sponsorship has increased 297 > 331 > 372 > 421 over the past 4 quarters, and analysts forecast FY '15 EPS +73%.


Advent Software (ADVS) seeing solid accumulation as it sets up in a 4 weeks tight pattern. A/D "B+", 50 day up/down volume ratio 1.5, 25 day ratio 1.7. ROE 18%, RS 88, EPS 95.


The blog tweeted out the Medidata Solutions (MDSO) chart last Sunday evening (1/12) and it gained a little over 2% for the week. MDSO still looks good here as the chart looks ready to break higher out of a Bollinger Band volatility squeeze. MDSO is under accumulation with a "B+" A/D rank, 50 day up/down volume of 1.6, and sponsorship increases of 238 > 256 > 310 > 315 over the last 4 quarters. MDSO is scheduled to report earnings 2/6/14.


Realpage (RP) is under accumulation despite the fact its pulled back 18% from its late October high. A/D rank is "B-", with a 50 day up/down volume ratio 1.0, but a 25 day ratio of 1.5 indicating shorter term accumulation. EPS 97, ROE 15%, EPS growth rate 76%, FY '13 EPS estimates +28%, FY '14 +27%. Check out the hammer on the weekly chart.


 


Internet: The January 5 blog post pointed out the improving strength of the Internet-Network Solutions group writing the "group has been a laggard group with a MarketSmith industry group rank of #141. However, that could be changing as the group ranks #23 on the trailing 5 week price performance list with a 5.3% gain." Since then the group has gained an additional 4.9% to rank #18 on the trailing 2 week price performance list and has jumped +33 in MarketSmith's industry group rankings from #141 to #108.

Both Gigamon (GIMO) and Solarwinds (SWI) were highlighted in previous posts and continue to look favorable. GIMO has a 3 weeks tight pattern on its weekly chart.



Computer: Computer related industry groups are gaining strength, especially the Computer-Data Storage group which gained 9.9% last week (#2) and jumped +74 in MarketSmith’s industry group rankings from #121 to #47. Three of the four groups from the sector rank in the top 40 of the trailing 5 week price performance list.

Electronics For Imaging (EFII) tried to break out Wednesday before falling back below its pivot. EFII is showing solid accumulation and recent EPS revisions have been higher. Look for EFII to take another shot at it, perhaps after earnings which are scheduled for Tuesday 1/28 AMC.



Mining: Two weeks ago the blog pointed out the improving performance of the mining sector, and that continued this past week as it was again the top performing sector with a 6.9% gain. For the week the Mining-Gold/Silver/Gems industry group ranked #5 on the trailing 1 week price performance list with a 6.5% gain, and jumped +20 in MarketSmith’s industry group ranks from #188 to #168. The Mining-Metal Ores group finished  #7 on the 1 week price list gaining +3.9%, and over the past 5 weeks has jumped +56 in MarketSmith’s industry group ranks from #142 to #86.

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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.