Sector & Group Rotation Notes – 12/30/12

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
Dow Jones Transportation Index	-2.2%	0.7%	1.8%	3.3%	6.7%	0.2%
Russell 2000	-1.9%	1.0%	1.2%	3.1%	-0.6%	4.2%
KBW Large Cap Bank Index	-1.3%	2.7%	2.6%	2.9%	2.0%	10.5%
Philadelphia Semiconductor Index	-2.3%	-1.1%	-0.7%	2.1%	-1.4%	-2.2%
Philadelphia Utility Index	-2.4%	-1.2%	-1.9%	1.8%	-6.1%	-8.3%
Philadelphia Housing Index	-1.7%	2.0%	3.2%	1.4%	6.0%	22.3%
Nasdaq Composite	-2.0%	-0.4%	-0.6%	-0.2%	-5.0%	0.9%
SP 500	-1.9%	-0.8%	-1.1%	-0.5%	-2.7%	3.0%
DJIA	-1.9%	-1.5%	-1.6%	-0.6%	-3.7%	0.5%
Pboe Oil Service Index	-2.9%	0.1%	-3.2%	-1.6%	-4.2%	6.6%
Russell 1000 Energy Index	-2.9%	-1.7%	-2.2%	-2.0%	-5.1%	3.8%
Philadelphia Gold/Silver Index	0.2%	-2.5%	-0.9%	-7.9%	-15.9%	2.0%

Last week markets pulled back as investor’s considered the possibility Washington would fail to reach an agreement in fiscal cliff negotiations. All four of the major equity indexes lost 1.9 – 2.0% in the lowest volume of the year.

Defensively oriented groups continued to perform poorly, and the tables directly below show that only 2 managed to finish in the top 50 over the trailing 1 week period, while 13 finished in the bottom 50. This lack of defensive rotation suggests last week’s selling was tactical and not strategic. After two weeks of slow holiday trade market performance Wednesday through Friday of this coming week will be key to determining the market's direction.

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)	9	4	8	10	10	9
# in the bottom 50 groups (out of 197)	9	9	5	6	7	7

                                                       

28 Technology Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	2	9	11	10	1	1
# in the bottom 50 groups (out of 197)	7	5	5	5	14	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)	2	3	3	2	5	5
# in the bottom 50 groups (out of 197)	13	14	15	10	10	12

Industry Group Performance:

Autos: Eight weeks ago this blog first pointed out the strength in auto related groups, and has discussed it every week since. The table below documents their performance over the trailing eight week period:

		Price Performance			MarketSmith Rank
Industry Group	Symbol	8 Week Gain	8 Week Rank		Industry Group Rank	8 week Δ
Auto Manufacturers	G3711	12.2%	4		13	+143
Auto/Truck-Original Eqp	G3714	10.1%	7		16	+129
Auto/Truck-Replace Parts	G3715	9.1%	8		7	+42
Auto/Truck-Tires & Misc	G3011	4.7%	32		110	+54
Trucks & Parts-Hvy Duty	G1010	1.8%	94		108	+61

Last week only four industry groups had positive price performance; three of them were auto related.

 

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.

 

Out of the Retail-Whlsle-Automobile group (G5014) LAD, ABG, and KAR all look attractive. Buy points are 36.99, 31.84, and 20.85 respectively.

  

Staffing: Four weeks ago the Sector Trends blog pointed out the emerging strength in the Comml Svcs-Staffing group (G1011). Over that period of time the group has gained 8.3% and has jumped from #76 to #12 in MarketSmith’s industry group rankings.

RHI  has gained 11% from its buy point and still looks healthy, although perhaps a bit extended. ASGN still looks attractive at current levels.

Although not in this group, Team Health Holdings (TMH), a provider of outsourced health care staffing, also looks attractive. TMH did a secondary of 8M shares 12/18 and may need to recover from that a bit longer. TMH has a 29.77 pivot. 

Housing: The housing sector continues to show robust strength.

Tile Shop Holdings (TTS) is a recent IPO with accelerating sales and EPS growth and is just now pushing into new highs. TTS is a thin stock averaging only 185K shares trade daily.

Chemicals: All three chemicals related groups are ranked in the top 30 of MarketSmith’s industry group rankings and have 13 week price performance that places them in the top 50 of all 197 groups.

Georgia Gulf Corp. (GGC) has a PE of 17 with FY ’12 EPS forecast +185% and FY ’13 +51%. GGC has pulled back ~ 17% to 2% below its pivot. GGC has seen some selling presumably due to the merger with PPG’s commodity chemical business. While not actionable at the moment, GGC looks good for the watch list.

US Silica Holding (SLCA) is a provider of commercial silica used in a variety of different applications, currently they are seeing explosive demand for the product as a fracking agent. SLCA has 4 consecutive quarters of +40% sales growth and +80% earnings growth.  SLCA looks buyable at current levels, but a pullback to the 50 day or slightly below would be ideal.

Telecom: The Telecom-Infrastructure group (G4895) has jumped from #90 to #48 in MarketSmith’s industry group rankings over the past two weeks and ranks #18 on the 5 week price performance list with a 6.7% gain.

Mastech Inc. (MTZ) trades at 22 times earnings and has FY ’12 EPS forecast +45%, and FY ’13 +27%. MTZ also sports +25% earnings and sales growth over the past two quarters. The accumulation/distribution ranking is “A-“, the up/down volume ratio is 1.6. EPS 90 and RS 96. MTZ is 0.10 past its 24.40 buy point.