Sector & Group Rotation Notes – 11/4/12

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	2.1%	-1.0%	5.7%	4.6%	23.4%	28.2%
Dow Jones Transportation Index	1.1%	0.6%	1.3%	4.4%	0.5%	-2.2%
KBW Large Cap Bank Index	1.7%	-0.7%	0.2%	1.0%	8.7%	6.2%
FXE euro	-0.8%	-1.5%	-1.0%	-0.2%	3.6%	-2.2%
Philadelphia Utility Index	-1.1%	-2.7%	-0.8%	-0.8%	-5.0%	0.8%
SP 500	0.2%	-1.3%	-1.0%	-1.8%	1.7%	3.3%
DJIA	-0.1%	-1.9%	-1.8%	-2.6%	0.0%	0.4%
Philadelphia Semiconductor Index	1.4%	2.0%	1.5%	-2.6%	-4.6%	-6.4%
Russell 2000	0.1%	-0.8%	-1.1%	-2.8%	3.3%	2.8%
Russell 1000 Energy Index	-1.1%	-3.6%	-2.0%	-3.2%	0.9%	3.6%
Pboe Oil Service Index	-2.0%	-6.1%	-2.7%	-3.8%	-2.8%	-3.1%
Nasdaq Composite	-0.2%	-0.8%	-2.0%	-4.3%	0.5%	0.9%
Philadelphia Gold/Silver Index	-2.1%	-3.7%	-3.2%	-6.3%	19.0%	14.2%

The major market indexes made gains on Thursday only to lose them on Friday and finish the week mostly flat. Semiconductors have been leading the tech sector lower, but the Philadelphia Semiconductor Index gained 1.4% on the week for its second consecutive weekly gain. This factor, combined with the signs of improved tech industry group performance seen in the tables below, suggests the hemorrhaging in tech is beginning to slow.

The Transports continued to perform well, with the Dow Jones Transportation Index gaining 1.1% on the week. The index is now up 4.1% since this blog pointed out the impending market weakness in its September 23 post.

The Philadelphia Utility Index fell 1.1% suggesting funds could be shifting out of the safer groups, this was mirrored by the relatively poor price performance of defensively oriented groups seen in the tables immediately below.

The energy sector fell hard and the Philadelphia Oil Service Index appears to have broken through support. More on the performance in energy related groups can be found below.

In economic reports last week the Personal Incomes and Outlays report indicated consumer spending was increasing, up 0.8% in September after a 0.5% increase in August; helped along by an increase in auto sales. The ISM Manufacturing Index released Thursday came in at 51.7 vs. a 51.5 consensus, an improvement from regional surveys but indicating the sector is still soft.

 

 

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)	4	7	11	8	5	5
# in the bottom 50 groups (out of 197)	11	12	8	9	6	14

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	9	5	1	2	1
# in the bottom 50 groups (out of 197)	7	6	14	18	14	19

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	5	7	6	7	7	10
# in the bottom 50 groups (out of 197)	11	10	8	7	11	1

Commodity oriented groups performed poorly primarily impacted by the performance of energy related groups.

Tech oriented groups have begun to improve slightly; perhaps suggesting the sell off is waning. Some of the software groups are beginning to show modest gains. Data storage, hardware, and networking groups all continued to perform poorly.

Defensively oriented groups had twice as many groups in the bottom 50 of the one week price performance list than in the top 50. The Tobacco group as well as all 4 utility related groups finished in the bottom 50 of the one week price performance list.

Industry Group Performance:

Auto related groups spiked higher last week, possibly on news that October auto sales rose 7% despite the impact of hurricane Sandy on sales in eastern states. (Read the WSJ coverage here). For the week all 5 auto related groups finished in the top 14 of the one week price performance list. The Auto/Truck-Replace Parts group gained 10.8%, Auto Manufacturers +8.0%, Auto/Truck-Tires & Misc +7.3%, Trucks & Parts-Hvy Duty +4.6%, and Auto/Truck-Original Equipment +4.1%. These groups have head faked investors several times over the past year but with the universal nature of this week's increases perhaps this time will be the charm. The sector is worth review by the reader.

Energy related groups took it on the chin last week, 10 of 13 groups finished in the bottom 50 of the one & two week price performance lists and none finished in the top 50. On the 13 week list only one group is in the top 50 (coal) 5 are in the bottom 50.

Last week this blog pointed out strength in the Leisure-Movies & Related group that continued this week with 3.5% weekly gain in heavy volume. The group is now #26 on the 13 week price performance list, but has an industry group rank of #115, and appears ready to break higher on  its weekly chart.

The Leisure-Gaming/Equip group has been trending horizontally in reduced volume for the past 7 weeks. The group has an industry group rank of 173, and ranks #172 on the 26 week price performance list with a 7.2% loss. However, it ranks #29 on the 13week list with an 11.9% gain. Watch to see if the group can break higher out of this 7 week channel.

The Medical-Biomed/Biotech group still enjoys a #10 MarketSmith industry group rank and ranks #27 on the 26 week price performance list with a 12.4% gain. However, it’s price performance over shorter time periods is poor, ranking #148 over the trailing 13 weeks with a 0.2% loss, and ranking #188 over the trailing 5 weeks with a 8.9% loss. The group has enjoyed a MarketSmith industry group rank of 15 or higher since the week ending 12/24/11, but that run may soon be over.