Listed below
are notes from the author's weekly analysis. The blog will not publish next
Sunday 12/16, but will return Sunday 12/23.
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 3 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.
Industry Group
|
1 Week Gain
|
2 Week Gain
|
3 Week Gain
|
5 Week Gain
|
13 Week Gain
|
26 Week Gain
|
Philadelphia Semiconductor Index
|
1.4%
|
2.8%
|
6.6%
|
1.9%
|
-5.4%
|
1.8%
|
Russell 2000
|
0.0%
|
1.9%
|
5.9%
|
1.0%
|
-1.9%
|
6.9%
|
Pboe Oil Service Index
|
1.4%
|
1.7%
|
5.5%
|
2.9%
|
-3.3%
|
9.9%
|
Dow Jones Transportation Index
|
0.2%
|
1.5%
|
4.8%
|
0.4%
|
1.7%
|
1.3%
|
KBW Large Cap Bank Index
|
1.6%
|
0.3%
|
4.6%
|
-1.5%
|
0.1%
|
13.1%
|
DJIA
|
1.0%
|
1.1%
|
4.5%
|
0.5%
|
-1.0%
|
4.8%
|
Nasdaq Composite
|
-1.1%
|
0.4%
|
4.4%
|
-0.1%
|
-5.0%
|
4.2%
|
SP 500
|
0.1%
|
0.6%
|
4.3%
|
0.3%
|
-1.4%
|
7.0%
|
Philadelphia Housing Index
|
-2.7%
|
-1.8%
|
4.2%
|
-1.8%
|
7.6%
|
31.5%
|
Russell 1000 Energy Index
|
0.9%
|
0.2%
|
4.0%
|
0.2%
|
-2.4%
|
10.2%
|
Philadelphia Utility Index
|
0.2%
|
3.9%
|
2.8%
|
-3.5%
|
-3.9%
|
-5.7%
|
Philadelphia Gold/Silver Index
|
-4.8%
|
-7.0%
|
-2.2%
|
-9.4%
|
-9.6%
|
0.0%
|
A few red
flags emerged into view last week as the markets, with the exception of the
Dow, stalled. The S&P 500 gained only 0.1%, the Russell 2000 gained 0.04%,
and the Nasdaq fell -1.1%. Many commentators have noted the Nasdaq was pulled
down by Apple's 8.9% (weekly) decline, but even backing out Apple's impact the
index still fell ~ 0.3%. Other disconcerting factors include defensive industry
group rotation last week (more on this below), generally poor economic data,
and no progress from the government on the fiscal front.
Monday's ISM
came in below the 51.7 consensus estimate with a value of 49.5. Values below 50
indicate contraction, and this was the fourth month out of the last 6 with a
sub-50 reading. Inventories were down significantly suggesting increased
caution on the part of business with regard to future demand. Largely as a
result of this moderation of inventory investment on Wednesday Goldman Sachs cut
its fourth quarter GDP estimate to an annual rate of 1%.
Friday's
employment data for November indicated a 146K gain in payroll, but both October
and September's payroll data were revised lower . The unemployment fell to 7.7%,
but this was due to a decline in the participation rate. The 63.6% participation
rate remains well below the historical average.
Friday also
saw the release of December's Consumer Sentiment; the index fell 8.2 to a value
of 74.5, far below consensus expectations of 80 - 85.5.
No progress
was reported in fiscal cliff negotiations and it appears unlikely an agreement will
be reached before the expiration of the Bush tax cuts December 31. The
President seems to have concluded that forcing the country over the cliff will allow
him to negotiate from a position of greater strength in early January. What
remains unknown is to what extent the market has priced in this outcome.
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)
|
7
|
7
|
13
|
8
|
6
|
9
|
# in the
bottom 50 groups (out of 197)
|
9
|
7
|
4
|
9
|
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)
|
9
|
9
|
9
|
6
|
0
|
0
|
# in the
bottom 50 groups (out of 197)
|
9
|
8
|
6
|
10
|
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)
|
10
|
9
|
3
|
9
|
9
|
7
|
# in the
bottom 50 groups (out of 197)
|
2
|
6
|
7
|
4
|
4
|
9
|
Last week's
analysis noted the performance increase of defensively oriented groups but
brushed it off as a result of an oversold bounce in utilities. This week that
move continued as 10 of the groups landed in the top 50 of the 1 week price
performance list, but this time there's no alternate explanation - investors
are simply getting more defensive (none of the 10 groups were utilities). A continuation of this trend would not bode
well for the current market uptrend.
Global:
China's new Communist
Party chief Xi Jinping made remarks this past Wednesday suggesting he believed
the Chinese economy had bottomed and that inflation was under control. The
comments suggested a bias towards growth, and the Shanghai composite, which had
been near four year lows, shot 2.9% higher in response. You can read more about
his comments here, here, and here.
The
Ishares Ftse China 25 (FXI) gained 3.4% on the week in volume 37% above
average. The ETF is now 1% past a 38.15 pivot out of a cup & handle base.
Also benefiting was Market Vectors Vietnam (VNM) which gained 5.2% for the week in
almost two times average volume. The vast bulk of the gains occurred after Xi's
comments.
Non dollar
denominated emerging market equities stand to benefit from the monetization of
US debt and the resulting currency devaluation. Although thinly traded, the Powershares FTSE RAFI Emerging
Markets ETF (PXH) is seeing some accumulation with an up/down volume ratio of
3.0. It appears to have broken higher through its descending trend line on this weekly chart.
Industry Group Performance:
Energy: Freeport-McMoRan (FCX) shocked
investors on Wednesday by announcing their purchase of McMoRan Exploration (MMR)
and Plains Exploration & Production (PXP) for $2.1 billion and $6.9
billion respectively. The move was widely panned by investors and analysts as
FCX declined 16% on the news, but MMR jumped 87% and PXP gained 23%. Regardless
of one's view of the efficacy of these deals, they do suggest some see value in
the Oil&Gas-U S Expl&Prod (G1310) group.
Another
positive for the group came on Thursday when the US government released a
potentially pivotal study which determined the US economy would see greater
benefit from allowing natural gas exports. The administration has indicated the
report would be central to its decision to allow exports. You can read more here.
Late Friday the Canadian government approved
a $20B Chinese investment in oil-sands operator Nexen, and some are speculating
this will help the energy sector on Monday.
Overall energy related industry groups are
mostly quiet. The Energy-Solar (G1320) and Oil&Gas-Drilling (G1381)
groups are performing well. The Energy-Solar group has spiked higher and
based on price performance is now the #7 ranked group over the trailing 26
weeks with a 26.6% gain, and the #1 ranked group over the trailing 2, 3, and 5
week periods. Its MarketSmith industry group ranking has improved +158 to #28
over the past 5 weeks. The Oil&Gas-Drilling group ranks #43 on the
26 week price performance list with a 14.8% gain, and is in the top 40 on the
1, 2, 3 and 5 week price performance lists. In MarketSmith's industry group
rankings the group is +67 to #88 over the past 6 weeks.
A simple screen of the Oil&Gas-U
S Expl&Prod (G1310) group looking for strong earnings growth
returned 11 names. The key parameters were price > $5, volume > 250K,
current year EPS estimate +10%, and next year EPS estimate +10%. The names
returned were OAS, EOG, NOG, BRY, CRZO, KOG, CLR, ROSE, PXP (the FCX acquisition),
QRE and BCEI.
The Sector Trends blog has tweeted this set up in
CRZO several times since Nov. 28. CRZO fell in early November after disappointment
over quarterly results. CRZO has current year EPS forecast +66% and next year's
+93%. The trailing PE is 15, and the PEG ratio is 0.70. A 7 1/2 day short
interest could provide some fuel for a move higher out of this small ascending
triangle.
Kodiak Oil & Gas saw some heavy buying
in the back half of the week helped along by UBS who initiated coverage with a
"buy" rating. KOG gained 5% on Wednesday in over 2x average volume,
its strongest volume since August. FY '12 EPS are forecast +327% and FY '13
+53%.
Continental Resources (CLR) gained 8% for
the week in volume 67% above average. CLR FY '12 EPS are forecast +20% and FY
'13 +43%. This past week CLR broke higher out of a 12 week descending channel.
Housing:
6 of 9 housing/building
related groups finished in the bottom 50 of the 1 week price performance list,
5 of 9 on the 2 week list. Over longer periods of time these groups look
healthy, and 5 of these groups rank in the top 25 of MarketSmith's industry
group rankings. However, this move started 14 months ago led by the Bldg-Resident/Comml
(G1520) group, industry group rank #8. Currently 12 of 19 stocks in this group
are trading under their 50 day MA, including 60% of the 10 stocks with RS 90+. It's
not a cause for alarm at the moment, but something to keep an eye on.
Staffing:
The Comml Svcs-Staffing (G1011) group continues to
perform well and finished this past week ranked #15 on the 1 week price performance
list with a 1.9% gain. Last week's analysis mentioned RHI as a buy at current
levels (28.26) and for the week it gained 3.5%. ASGN still looks promising with
a 20.74 buy point.
Retail: Last week's employment report noted strong seasonal
hiring by retail, suggesting retailers are anticipating a solid holiday selling
season. However, that optimism isn't being bought by investors as retail
related industry groups are suffering on the shorter term price performance
lists. Check out the price performance of the retail related groups in the
table below (there are a total of 20 retail related groups).
Price Performance
|
||
# groups top 50
|
# groups bottom 50
|
|
1 week
|
2
|
9
|
2 week
|
3
|
10
|
3 week
|
3
|
9
|
5 week
|
4
|
7
|
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