Sector & Group Rotation Notes – 12/23/12

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.

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	3.8%	5.0%	2.2%	9.4%	2.0%	36.9%
Russell 2000	2.9%	3.1%	3.2%	9.2%	-0.9%	9.4%
Dow Jones Transportation Index	3.0%	4.1%	4.3%	9.2%	8.8%	5.1%
KBW Large Cap Bank Index	4.1%	4.0%	5.6%	8.8%	2.1%	13.7%
Philadelphia Semiconductor Index	1.2%	1.6%	3.0%	8.3%	-2.4%	1.8%
Nasdaq Composite	1.7%	1.4%	0.4%	5.9%	-5.0%	4.4%
SP 500	1.2%	0.9%	1.0%	5.2%	-2.1%	7.1%
Pboe Oil Service Index	3.1%	-0.3%	1.2%	5.2%	-5.6%	14.7%
DJIA	0.4%	0.3%	1.3%	4.8%	-2.9%	4.4%
Russell 1000 Energy Index	1.3%	0.7%	1.6%	4.8%	-3.8%	12.3%
Philadelphia Utility Index	1.3%	0.5%	0.7%	3.4%	-2.8%	-4.3%
Philadelphia Gold/Silver Index	-2.7%	-1.1%	-5.8%	-3.2%	-17.9%	2.6%

The character of the market has become much more positive since this blog's last post on 12/9, especially over the past week.

On Tuesday the Nasdaq gained 1.5% on volume 15% above average, its highest volume positive day since the recent bottom 11/16; and although the Nasdaq fell 1% on Friday it finished strong ending just a tiny fraction off the high of its daily range.

The Russell 2000 had a very strong week gaining 2.9%, and pulled back only 0.5% on Friday. Over the four day Mon - Thu period index gained 3.4% in volume 9.5% above average. Since the 11/16 market low the Russell 2000 has lead all broad based indexes with a 9.2%.
 

This week the Dow Jones Transportation Index broke higher through a descending trend line dating back to July 2011.  Volume for the week was running 12.3% above average before options expiration on Friday.
 

Most importantly, as shown below industry group rotation has turned decidedly positive with technology groups starting to lead for the first time in many months.

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)	5	8	8	10	7	12
# in the bottom 50 groups (out of 197)	7	6	4	4	8	5

28 Technology Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	13	13	13	10	1	0
# in the bottom 50 groups (out of 197)	4	5	4	4	16	16

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	3	2	3	4	7	4
# in the bottom 50 groups (out of 197)	14	12	10	11	7	9

As noted above rotation has turned decidedly positive as technology oriented groups are leading the market higher, and more defensively oriented groups are starting to occupy the bottom quartile of the weekly price performance lists.

Within MarketSmith's industry group rankings the highest ranked technology-oriented group comes in at #58 (Computer Sftwr-Enterprse, symbol G3583), and only 7 of the 28 groups finish in the top half, hence it may be a few weeks before the trend becomes obvious.

Global:

Over the trailing 5 weeks of this uptrend the Russell 2000 has gained 9.2%, the Nasdaq 5.9%, and the S&P 500 5.2%. Despite these positive performances, when compared over the same time period to the 43 non-leveraged country-specific ETFs tracked by this blog the S&P 500 and the Nasdaq finish in the bottom quartile. Even the Russell 2000 with its 9.2% gain doesn't crack the top quartile. Hence global ETFs should be an area of significant interest to the reader.

Two weeks ago this blog highlighted the Market Vectors Vietnam (VNM) ETF, which has since tacked on another 5.2% in volume 45% above average.

Ishares Poland (EPOL) is 4% past its pivot out of an 11 week consolidation in heavy volume.

Ishares South Korea (EWY) is only 1.7% off its 52 week high.

Ishares FTSE China 25 (FXI) was highlighted two weeks ago and remains 3% past a 38.15 pivot out of a cup & handle base.

Industry Group Performance:

Staffing: Three weeks ago this blog highlighted the improving price momentum in the Comml Svcs-Staffing group (G1011), since then the group is the #2 ranked group on the 3 week price performance list gaining 10.4% and has jumped in the MarketSmith industry group rankings from #76 to #14.

Three weeks ago Robert Half (RHI) was recommended at its then current price of 28.26. RHI has since gained 11.3% and volume last week was very heavy.

 

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 "A-" accumulation/distribution rating, a 1.1 up/down volume ratio, and is seeing consistent increases in institutional sponsorship. ASGN finished at the top of its daily range on Friday in more than 3x average volume. While ASGN has 20.74 pivot out of a flat base Friday's performance combined with the outstanding industry group momentum suggests it can be purchased here at current levels.

Fiber Optics: The Telecom-Fiber Optics group (G3552) continues to exhibit superior price momentum, ranking #8 on the 5 week price performance list with a 15.3% gain. JDSU is +17% from the 11.30 buy point identified in the November 11th blog post, and CIEN is +6% from its $15 buy point. CIEN has since set up a second buy point, 16.43 out of a cup and handle.

Autos: This blog first noted the strength in Auto related groups seven weeks ago. Since that time these group's price momentum has continued; all 5 auto related groups now rank in the top 35 of the 13 week price performance list and have MarketSmith industry group rankings in the top half of all 197 groups.

Titan International (TWI) has a trailing PE of 10 with analyst EPS forecasts +52% FY 12, and +21% FY '13. The accumulation/distribution ranking is "B+". TWI appears to have a pivot of ~ 22.25.

Ford was highlighted several weeks ago with an 11.59 pivot out of a cup & handle base. It is now 2% past that pivot at 11.86, and saw strong volume last week. It appears headed higher.

 

Johnson Controls (JCI) has a trailing PE of 12 and FY '12 EPS forecast +3%, and FY '13 EPS +22%. The accumulation/distribution rating is "A" and the up/down volume ratio is 1.3. JCI yields 2.5%, and looks like a buy here at current price levels.

Computer: Computer related groups (excluding AAPL's group Computer-Hardware/Perip) have performed well over the past 3 weeks with Data Storage (G3578), Networking (G3574), and Integrated Systems (G1004) all finishing in the top 50 of the 3 week price performance list.

Synaptics (SYNA) looks good on a move over 30.75. SYNA has an accumulation/distribution rating is "A-" and the up/down volume ratio is 1.6. Last Wednesday SYNA gapped up over its 200 day MA in almost 2.5x average volume. Volume for the week was 2x its 50 day average.

IXIA (XXIA) is 3% past its pivot out of a cup & handle base and is still in the buy range. The accumulation/distribution rating is "A", EPS 94, RS 92, SMR "A". Analysts forecast FY '12 earnings +25%, and FY '13 +28%.