Sector & Group Rotation Notes – 11/18/12

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. Clicking once on a chart enlarges it for enhanced readability.

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.

Industry Group	1 Week Gain	2 Week Gain	3 Week Gain	5  Week Gain	13 Week Gain	26 Week Gain
Philadelphia Housing Index	-4.1%	-5.8%	-3.9%	-0.5%	7.8%	32.1%
FXE euro	0.2%	-0.7%	-1.5%	-1.7%	3.2%	-0.5%
Philadelphia Semiconductor Index	-3.7%	-4.4%	-3.1%	-2.9%	-12.1%	-2.3%
Dow Jones Transportation Index	-2.5%	-4.3%	-3.2%	-3.0%	-5.8%	0.4%
SP 500	-1.4%	-3.8%	-3.7%	-4.8%	-4.1%	5.0%
Pboe Oil Service Index	0.4%	-2.5%	-4.4%	-5.1%	-8.5%	4.9%
Russell 1000 Energy Index	-1.2%	-3.6%	-4.7%	-5.5%	-5.0%	6.8%
DJIA	-1.8%	-3.9%	-4.0%	-5.6%	-5.2%	1.8%
Russell 2000	-2.4%	-4.7%	-4.5%	-5.7%	-5.3%	3.9%
KBW Large Cap Bank Index	-2.0%	-5.9%	-4.3%	-5.7%	-0.2%	9.4%
Nasdaq Composite	-1.8%	-4.3%	-4.5%	-6.3%	-7.3%	2.7%
Philadelphia Utility Index	-1.3%	-6.1%	-7.1%	-6.8%	-8.3%	-5.0%
Philadelphia Gold/Silver Index	-8.5%	-7.4%	-9.3%	-10.4%	3.5%	12.1%

Last week the markets continued to sell off, picking up momentum during President Obama's midweek press conference.  On Friday markets ticked up after the President and congressional leaders agreed to move quickly on negotiations to avert the fiscal cliff. Declines in the major indexes were lead by the Russell 2000 which shed 2.4%, the Nasdaq and DJIA were both off 1.8% and the S&P 500 lost 1.4%.

The Dow Jones Transportation Index fell 2.5% for the week and is less than 1% from the bottom of a 25 week consolidation. The KBW Large Cap Bank Index fell 2% and is also resting on support.

The Philadelphia Gold/Silver Index declined 8.5% for the week, crashing through the bottom of a descending triangle pattern. The Philadelphia Housing Index lost 4.1% for the week, and -5.8% for the trailing 2 weeks. Mid week the index knifed through the bottom of an 9 week channel, but recovered to close above it on Friday.

 

 

Utilities continued their sell off until bouncing 0.9% Friday, and the Philadelphia Semiconductor Index lost 3.7%, once again looking like it wants to revisit the 345 area of its chart. 

Energy slowed their rate of decline with the PBOE Oil Service index actually gaining 0.4% for the week.

The Barclays Copper ETF gained 0.2% for the week in volume 9% above average. It reamins close to violating the lower trendline of its triangle pattern.

 

Larger Group Themes:

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.

33 Commodity Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	3	2	2	6	3	7
# in the bottom 50 groups (out of 197)	16	16	11	9	11	13

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	2	2	3	1	1
# in the bottom 50 groups (out of 197)	12	10	10	13	18	18

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	12	12	12	8	8	7
# in the bottom 50 groups (out of 197)	1	6	5	6	5	5

Aggregate group performance last week was largely defensive as commodity oriented groups performed poorly and defensively oriented groups performed well. Technology oriented groups performed marginally better than in recent weeks as some of the Software related groups began to turn around slightly; for the week 4 software groups finished in the top 50 on the 1 week price performance list.

As mentioned above the markets rallied slightly on Friday, but performance still had a somewhat defensive cast to it. Dividend generating groups had taken a beating since the election but saw buyers stepping in on Friday (pipelines, mortgage REITs, etc.)

Industry Group Performance:

As mentioned in the market overview section housing related stocks pierced the bottom of a 9 week channel before bouncing on Friday. For the week 6 0f the 9 groups finished in the bottom half of the one week price performance list, the Bldg-Mobile/Mfg & Rv industry group was hit especially hard falling 6% for the week.

This blog has pointed out on several occasions what appears to be emerging strength in auto related groups. Last week the group's performance was only average, but the Auto Manufacturers group finished #27 on the 1 week price performance list with only a 0.2% loss. On the 3 week price performance list all 5 of the auto related groups are ranked in the top 44, with the Auto Manufacturers group ranked #1.

The Cosmetics/Personal Care industry group has been a steady performer, and is ranked in the top 51 overall on the 1, 2, 3, 5, 13 and 26 week price performance lists. Last week the MarketSmith industry group rank improved +13 to #49 overall. Elizabeth Arden (RDEN) has been trading in a very tight 14 week channel between $44 and $49. Institutional sponsorship has been increasing steadily over the past 7 quarters. RDEN currently trades at 46.23, but could present a purchase opportunity at another pullback to $44, or on a break out over $49. Wells Fargo says that Elizabeth Arden's Q1 results give it confidence in the company's growth strategy. The firm is impressed by the company's margin expansion and expects the company's margins to increase significantly in the second half of FY13. It maintains an Outperform rating. Stephens believes that Elizabeth Arden's guidance appears to be conservative and the firm recommends that investors buy the stock at current levels. The firm maintains an Overweight rating on the stock.

 

Prestige Brands (PBH) is another stock in the group that jumped 18.5% after beating consensus estimates and raising guidance on November 1. Analyst's project FY '13 EPS +55% and FY '14 EPS +8%. PBH trades at 16x trailing earnings and has developed an attractive bull flag on its chart.

Another consumer group that has been performing well is the Hsehold-Appliances/Wares industry group which enjoys a MarketSmith industry group rank of #9. Recent price performance has been solid suggesting the group has more room to run. Tupperware Brands Group (TUP) recently beat earnings estimates and increased guidance. TUP could be a buy on a break out of this flag pattern.

Energy related names finished another soft week with 10 of 13 energy related groups finishing in the bottom half of the 1 week price performance list. That said, it's possible we're seeing the beginning of a turnaround as the Oil&Gas-Machinery/Equip group finished #13 on the weekly list, and Oil&Gas-Drilling finished #16. Stocks in the Oil&Gas-Transprt/Pipelne industry group have been selling off but buyers stepped in Friday pushing the group up 3% in volume 50% above average. Williams Partners (WPZ) gained 6.8% Friday among many others in the group with strong gains.