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.
Market Overview:
The table
below shows price performance for key markets and sectors over the trailing 26
weeks, and this week is sorted high to low by 2 week performance so as to better identify trends within
the current uptrend. The green and red shading denotes relative performance +/-
to the SP 500 for the time period in question.
Index
|
1 Week Gain
|
2 Week Gain
|
3 Week Gain
|
5 Week Gain
|
13 Week Gain
|
26 Week Gain
|
Philadelphia Housing Index
|
0.9%
|
7.1%
|
2.7%
|
3.0%
|
14.2%
|
43.0%
|
Russell 2000
|
1.8%
|
5.9%
|
3.4%
|
1.1%
|
1.2%
|
11.5%
|
Nasdaq Composite
|
1.5%
|
5.5%
|
3.6%
|
0.7%
|
-1.8%
|
9.6%
|
Philadelphia Semiconductor Index
|
1.4%
|
5.2%
|
1.3%
|
1.9%
|
-5.5%
|
6.0%
|
Dow Jones Transportation Index
|
1.3%
|
4.7%
|
2.0%
|
1.3%
|
2.2%
|
4.2%
|
SP 500
|
0.5%
|
4.1%
|
2.6%
|
0.3%
|
0.7%
|
10.8%
|
Pboe Oil Service Index
|
0.2%
|
3.9%
|
4.3%
|
-0.6%
|
-2.4%
|
11.5%
|
DJIA
|
0.1%
|
3.5%
|
1.6%
|
-0.6%
|
-0.5%
|
7.5%
|
Russell 1000 Energy Index
|
-0.6%
|
3.1%
|
1.8%
|
-1.8%
|
-0.5%
|
13.5%
|
KBW Large Cap Bank Index
|
-1.2%
|
3.0%
|
0.9%
|
-1.4%
|
2.9%
|
15.8%
|
Philadelphia Gold/Silver Index
|
-2.4%
|
2.7%
|
-6.0%
|
-6.9%
|
0.2%
|
4.6%
|
Philadelphia Utility Index
|
3.6%
|
2.6%
|
1.3%
|
-4.7%
|
-3.6%
|
-3.0%
|
The major broad based equity indexes are
now being lead by the Russell 2000 and Nasdaq with 5.9% and 5.5% gains over the
trailing two weeks, the type of behavior one likes to see in a market uptrend.
Utilities may have bottomed as the Philadelphia Utility Index jumped 3.6% for the week. A review of
utility related groups in MarketSmith shows weekly volume in the Utility-Diversified
group +30% and in the Utility-Gas Distribution group +32%. Volume in the
other two related groups increased more modestly, Utility-Water Supply +5% and Utility-Electric Power +10%.
Price increases across all 4 groups were healthy, ranging from +2.7% to +3.4%.
It appears the pullback in these groups is over and they are beginning to
rebound.
On Monday
the release of the Dallas Fed Manufacturing Survey showed little change from
October, but both the general business activity and company outlook index
worsened as they registered negative readings, the first for the company
outlook since April. Other indexes in the survey reflecting future business conditions also
fell sharply. On Friday the Chicago PMI mirrored this outlook; while the index
itself came in slightly positive at 50.4 the forward-looking new orders
component showed significant contraction falling 5 points to 45.3.
On Tuesday consumer confidence numbers held steady, mildly
exceeding consensus estimates. Of special interest to readers the report showed
a large 1.5% jump to 6.9% for those expecting to buy a house in the next 6
months, and those who plan to buy a major appliance in the next 6 months
increased 4.0% to 50.6%.
Housing data
released last week was mixed. On Tuesday the Case-Shiller Home Price Index
pointed to increasing momentum with a 0.4% increase, only to have Wednesday
bring a 20K downward revision to September's new home sales and a 19K miss for October's
consensus number. On Thursday November's
Pending Homes Sales Index jumped a very strong 5.2%, easily exceeding the 0.5%
- 4.0% consensus range. For the week housing increased modestly as the Philadelphia Housing Index gained 0.9%.
On Thursday
real GDP for the third quarter was revised upward to 2.7% compared to an
advance estimate of 2.0%, and the second quarter rate of 1.3%. Most MSM news
outlets celebrated the news, with one network news anchor heralding the
"surprising new strength" in the economy. However, the internal
composition of the data suggests a shift away from demand components, and nearly
all reports ignored the contradictory implications of GDI increasing over the
past two quarters at an annual rate of only 0.5%. This data suggests the GDP
number should be viewed with a healthy level of skepticism.
The Sector Trends blog makes a conscious
effort to remain focused on markets and stocks in both its blog posts and
tweets, and realizes readers are not interested in the author's political
views. The following political observation is not gratuitous venting, nor is
it meant to insult readers who are Democrats, but is written only to highlight
the current risk to the market from the political class.
"Fiscal Cliff" negotiations went
nowhere last week as the President eschewed serious negotiation and continued
campaigning. Instead Tim Geithner made
congressional Republicans a deliberately insulting offer designed to be
rejected. The President appears to believe he is in a win-win situation: if
Republicans cave to his demands he wins with higher taxes, and if negotiations fail he wins with even higher taxes (more money to redistribute), while at
the same time getting to blame Republicans for the resulting tax increases and economic problems. Regardless of
how the reader views the President's intent, the markets price action suggests most
participants are anticipating a drama-free resolution to these negotiations.
These actions suggest this is an unlikely outcome, and Erskine Bowles agrees.
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)
|
8
|
12
|
9
|
5
|
7
|
8
|
# in the
bottom 50 groups (out of 197)
|
6
|
4
|
7
|
8
|
6
|
9
|
28 Technology Oriented Groups:
|
1 wk
|
2 wk
|
3 wk
|
5 wk
|
13 wk
|
26 wk
|
# in the
top 50 groups (out of 197)
|
11
|
9
|
5
|
4
|
0
|
1
|
# in the
bottom 50 groups (out of 197)
|
7
|
7
|
9
|
10
|
20
|
15
|
30 Defensively Oriented Groups:
|
1 wk
|
2 wk
|
3 wk
|
5 wk
|
13 wk
|
26 wk
|
# in the
top 50 groups (out of 197)
|
8
|
3
|
6
|
8
|
6
|
5
|
# in the
bottom 50 groups (out of 197)
|
10
|
12
|
5
|
8
|
7
|
8
|
Last week only
5 tech groups made the top 50 groups in 1 week price performance, this week the
number more than doubled to 11. While this is not an exciting number,
it does suggest the decline in tech is abating. Weekly price performance
roughly correlated with industry group rank. All 3 semiconductor related
industry groups finished in the top 50 of the 1 week price performance list,
and the top 25 of the 2 week list; however their performance fades when viewed over
3 week or longer time frames. Software related groups remain very weak.
Last week
only 3 defensive groups made the top 50 of the 1 week list, this past week that
increased to 8. However, 4 of those 8 groups were utility related and as
discussed above the price action in utilities appears to be more a reaction to
oversold conditions.
Industry Group Performance:
Autos: The Sector Trends blog has been covering the gathering strength in auto related groups
for the past 4 weeks, this WSJ article does a good job of covering the
fundamental back story. The strength in these groups continued last week as all
5 auto related groups accelerated higher in the MarketSmith industry group
rankings. Their weekly performance is summarized in the table below:
1 week Performance
|
||||||
Symb.
|
Price Perf.
|
Price Rank
|
Ind. Group Rank
|
Ind. Group Δ
|
||
Auto/Truck-Replace Parts
|
G3715
|
3.4%
|
20
|
9
|
+14
|
|
Auto/Truck-Tires & Misc
|
G3011
|
3.9%
|
11
|
70
|
+54
|
|
Auto Manufacturers
|
G3711
|
4.0%
|
10
|
77
|
+26
|
|
Auto/Truck-Original Eqp
|
G3714
|
1.7%
|
83
|
103
|
+11
|
|
Trucks & Parts-Hvy Duty
|
G1010
|
-0.3%
|
175
|
134
|
+1
|
|
The industry
group change in rank (Δ) over the trailing 5 weeks ranges from +55 to +126.
Delphi Automotive
(DLPH) was highlighted in the Nov. 11th blog post and is now 3% past the 32.98
buy point. DLPH is under heavy accumulation with an accumulation/distribution
rating of "B+" and an up/down volume ratio of 1.7. Institutional
sponsorship has exploded, going from 122 > 318 > 497 > 571 funds over
the last 4 reporting periods. The trailing PE is 9, and FY '12 EPS are forecast
+13%, FY '13 +15%. DLPH is emerging from a 9 month base.
Ford Motor
(F) has an 11.59 buy point out of a 42 week cup & handle base. Ford is seeing heavy accumulation with a 50
day up/down volume ratio of 1.5 and an accumulation/distribution rating of
"B+". A return to the 52 week high last seen in January would
represent a 14% gain from current levels.
Tesla Motors
(TSLA) broke above its descending trend line last week and is under
accumulation. Institutional funds have increased over the last 4 quarters 349
> 359 > 384 > 393. The up/down volume ratio will spike higher next
week as the trailing 10th week drops off the calculation, the accumulation is
easily seen on this weekly chart.
These auto
dealers from the Retail-Whlsle-Automobile (G5014) group could also have
potential:
Lithia
Motors (LAD) has a trailing PE of 13 with FY '12 EPS estimates +48%, and FY '13
+11%. This company is 7-for-7 in positive earnings surprises over the last
seven quarters and analysts have been increasing earnings estimates for the
next quarter and fiscal year. LAD is under accumulation with an up/down volume
ratio of 1.8 and an accumulation/distribution rating of "B";
institutional sponsorship has increased steadily for the last 8 quarters. RS
95, EPS 99. LAD has a 37.15 buy point out of a 6 week flat base.
Asbury
Automotive Group (ABG) has averaged an EPS growth rate of over 50% for the last
4 quarters yet trades with a PEG ratio of 0.50. Given it's EPS growth and low
valuation it's not surprising that ABG is under heavy accumulation with an
up/down volume ratio of 1.7. Institutional sponsorship has increased 212 >
249 > 273 > 288 over the last 4 quarters. FY '12 EPS estimates are
forecast +44%, FY '13 +11%. RS 86, EPS 90. ABG saw heavy buying Tue-Fri last
week, and looks like a buy at current levels only 1.7% over its 50 day MA.
Carmax (KMX)
does not have the strong EPS projections of LAD or ABG, but has RS at a new
high and price is just 0.76 shy of reaching a new all time high. The
accumulation/distribution rating is "A-" and institutional
sponsorship has increased 792 > 827 over the last quarter.
Fiber Optics: This blog's Nov. 11th
post pointed out the strength in the fiber optic group that resulted from ATT's
(T) decision to spend $22B on capital projects and $14B to improve its wireless
networks. Since that time the Telecom-Fiber Optics (G3552) group ranks
in the top 30 of the 1, 2 and 5 week price performance lists. Its 5 week gain
of 6.9% (#17) is actually skewed substantially lower by Sycamore Networks (SCMR)
going ex-dividend 11/13 on a $2 special dividend that was part of the company's dissolution
plan. For the week ending 11/16 SCMR finished down over 50%.
JDSU
Uniphase (JDSU) is now 7.3% past the 11.30 buy point identified in the Nov. 11
blog post, but CIEN is still below its $15 buy point. Institutions are
interested, CIEN has an accumulation/distribution rating of "A-" and
institutional sponsorship has increased 348 > 392 > 445. A move back to August highs will yield a 20% gain.
There are
numerous other charts in the group which should provide opportunity for the
more speculatively inclined reader. Pull up the
industry group and use MarketSmith's "show all component data"
feature to drill down and review all 14 of the groups stocks.
Staffing: The Comml Svcs-Staffing
group (G1011) is ranked #33 on the 13 week price performance list with a 8.8%
gain. Over the same 13 week period the group's MarketSmith industry group rank
has improved +66 from #142 to #76.
On
Assignment (ASGN) has 8 consecutive quarters of +50% earnings and +20% sales
growth; last quarter's earnings were +62% and sales +139%. ASGN has a
"B+" accumulation/distribution rating, a 1.2 up/down volume ratio,
and is seeing consistent increases in institutional sponsorship. ASGN has a
20.74 pivot out of a 10 week flat base.
Robert Half
(RHI) is also showing signs of accumulation and the weekly chart below shows its
steady history of profit and sales increases. RHI looks like it can be
purchased here at current levels, see the commentary on the two charts below
for additional explanation.
Finance: Last week this blog
highlighted the interesting price action of the Finance-Consumer Loans
(G6148) industry group. For the week the group gained a solid 2.0% ranking #71
on the 1 week price performance list, and now ranks #14 on the 3 week price
performance list. Not that surprisingly the group also jumped +30 in MarketSmith's
industry group rankings from #151 to #121.
First Cash
(FCFS) was highlighted last Sunday and on Monday broke out past its 47.50 pivot
gaining 1.1% in 42% higher volume. FCFS closed at 49 on Thursday but pulled
back 1.4% on Friday.
DFC Global
(DLLR) continued to move modestly higher out of its descending channel and
could provide an entry with a move over the 200 day MA.
Amira Nature
Foods (ANFI) is a recent IPO with an interesting chart:
Leisure: The Leisure-Gaming/Equip group
(G7901) has gained 9.8% over the last 13 weeks, ranking #25 on the 13 week
price performance list. Over the same period of time the group is +57 to #129
in MarketSmith's industry group rankings.
Monarch
Casino (MCRI) blew out of this triangle pattern on Friday gaining 4.5% on over
2x average volume. Last quarter's sales and earnings were sharply higher, +32%
and +79% respectively, and the up/down volume ratio is a very strong 2.1. MCRI is a very thin stock averaging only 24K shares daily, but it might be good for a very small position - it looks like it's headed higher from here.
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