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 Utility Index
|
2.3%
|
2.4%
|
3.8%
|
5.9%
|
13.3%
|
6.3%
|
Philadelphia Housing Index
|
-0.6%
|
0.3%
|
0.7%
|
5.6%
|
14.6%
|
21.5%
|
Dow Jones Transportation Index
|
1.2%
|
-0.3%
|
1.8%
|
5.2%
|
19.8%
|
27.9%
|
DJIA
|
0.5%
|
0.4%
|
1.3%
|
4.1%
|
12.7%
|
8.5%
|
Russell 2000
|
0.6%
|
-0.1%
|
1.0%
|
3.9%
|
14.4%
|
13.6%
|
SP 500
|
0.8%
|
0.5%
|
1.2%
|
3.6%
|
11.9%
|
8.9%
|
Nasdaq Composite
|
0.7%
|
0.6%
|
0.7%
|
3.3%
|
10.4%
|
4.9%
|
KBW Large Cap Bank Index
|
-0.6%
|
-2.2%
|
-0.5%
|
3.3%
|
11.2%
|
13.5%
|
Philadelphia Semiconductor Index
|
1.5%
|
0.6%
|
0.3%
|
2.7%
|
15.9%
|
14.2%
|
Cboe Technology Index
|
-0.4%
|
0.2%
|
1.2%
|
2.5%
|
5.6%
|
-5.2%
|
Russell 1000 Energy Index
|
0.7%
|
-0.4%
|
0.8%
|
1.9%
|
12.2%
|
6.4%
|
Pboe Oil Service Index
|
2.5%
|
-1.6%
|
0.3%
|
-0.1%
|
14.4%
|
9.6%
|
Philadelphia Gold/Silver Index
|
-0.9%
|
1.0%
|
1.8%
|
-0.4%
|
-15.5%
|
-28.9%
|
The markets
moved higher last week in modest volume as the S&P 500
led the broad based indices with a 0.8% gain. Housing, large cap banks and
technology all faltered while utilities gained 2.3%. The Pboe Oil Service Index bounced back a little from the previous
weeks 4.1% loss with a 2.5% gain. The S&P 500 picked up a distribution day
on Monday giving NYSE and Nasdaq stocks 4 distribution days each over the
trailing 4 weeks.
Economic data continued to come in mostly positive. The Dallas Fed
manufacturing survey came in at 7.4 versus an expectation of 3.4, and even
exceeded the high end of the consensus range. Durable goods orders read 5.7% versus
an expectation of 3.5%, although this was largely driven by transportation as Boeing experienced a rebound in orders. GDP was +0.4 and
Chicago PMI 52.4, both missing consensus expectations slightly but none the
less still indicating modest expansion.
The S&P Case-Shiller HPI, an average of home price
appreciation over 20 cities, showed a solid 1% M/M increase, and an impressive 8.2%
Y/Y gain. Friday’s personal income and outlays data was another positive
indicating a 1.1% M/M gain in income, and a 2.6% increase Y/Y. Consumer
spending increased 0.7% M/M and 3.3 Y/Y.
Consumer confidence and consumer sentiment reports were
contradictory with the former missing expectations significantly (59.7 vs.
67.5) while the latter exceeded by a similar margin (78.6 vs. 72.5). However,
the consumer sentiment report correlates with consumer spending to a higher
degree than consumer confidence. Jobless claims data released Thursday missed
estimates 357K vs. 340K, but the 4 week average is still 10K below February’s.
Europe raised its head again on Wednesday when Italian
politician Pier Luigi Bersani, the head of a center-left alliance said only an “insane
person” would want to govern Italy and that the country is a “mess.” No doubt there’s
more drama to come…
The market
is approaching record highs and the advance decline line is still healthy, but there
are reasons for caution here. As the table below demonstrates defensive groups
are starting to outperform, and have outperformed 3 out of the 4 trailing weeks
when looking at one week time frames. The S&P 500 has started to outperform
the Russell 2000, the index which has led the rally, and leads the Nasdaq over
almost every time frame (the market tends to underperform when the S&P 500
leads). Volume is weakening and utilities now lead over the trailing 5 weeks
with a 5.9% gain.
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.
30 Commodity
Oriented Groups:
|
1 wk
|
2 wk
|
3 wk
|
5 wk
|
13 wk
|
26 wk
|
# in the
top 50 groups (out of 197)
|
5
|
5
|
4
|
4
|
7
|
8
|
# in the
bottom 50 groups (out of 197)
|
13
|
16
|
10
|
12
|
11
|
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)
|
9
|
4
|
3
|
4
|
7
|
2
|
# in the
bottom 50 groups (out of 197)
|
5
|
10
|
11
|
9
|
10
|
14
|
30 Defensively
Oriented Groups:
|
1 wk
|
2 wk
|
3 wk
|
5 wk
|
13 wk
|
26 wk
|
# in the
top 50 groups (out of 197)
|
11
|
10
|
14
|
8
|
9
|
8
|
# in the
bottom 50 groups (out of 197)
|
5
|
2
|
2
|
3
|
3
|
7
|
Defensive groups led last week and are now outperforming
over the 1, 2, 3 and 5 week time frames.
Industry Group Performance:
Energy: Energy related groups muddled through the week with 3
finishing in the top 50, and 3 in the bottom 50. It appears more time to base
& consolidate is needed.
Apparel: Last week’s blog post pointed
out the improving performance of the Apparel-Shoes & Rel Mfg group
(G3141) and that continued this past week with a 1.1% gain. The group now ranks
#27 on the trailing 5 week price performance list with a 7.6% gain. Industry
group rank improved +11 to #128. Continue to watch SKX for a Bollinger Band
squeeze.
Business Services: A number of the
business services related industry groups are beginning to show gathering price
momentum and concomitant MarketSmith industry group rank improvement. The
participating groups are shown in the table below:
Price
|
Ind. Group
|
||||
Industry Group
|
Symb.
|
3 Week Gain
|
3 Week Rank
|
Rank
|
3 Week Rank ∆
|
Comml Svcs-Consulting
|
G8242
|
4.1%
|
21
|
49
|
+48
|
Comml Svcs-Market Rsrch
|
G8244
|
1.2%
|
105
|
111
|
+39
|
Bldg-Maintenance & Svc
|
G7340
|
4.1%
|
23
|
70
|
+37
|
Comml Svcs-Outsourcing
|
G1001
|
3.4%
|
41
|
68
|
+18
|
Comml Svcs-Document Mgmt
|
G2751
|
2.2%
|
73
|
53
|
+5
|
Corrections
Corp. of America (CXW) is under heavy accumulation with a 50 day u[/down volume
ratio of 2.1 and a 25 day ratio of 2.9. CXW has a 39.31 pivot out of a 7 week
flat base. RS 79, EPS 80, dividend yield 5.4%.
Towers
Watson (TW) is also under accumulation with an “A-“ Accumulation/Distribution
rating and a 50 day up/down volume ratio of 2.0. TW is 2% past its pivot out of
a cup and handle base, but is also extended above its upper Bollinger Band.
Look for it to pull back or consolidate briefly before considering a position.
Servicenow
Inc. (NOW) is under accumulation with a “B+” Accumulation/Distribution rating
and a 50 day up/down volume ratio of 1.8. Institutional sponsorship increased
over 50% in the last quarter from 198 funds to 318. Quarterly sales have
increased +80% for the last 8 consecutive quarters. NOW has a 38.22 pivot out
of a 25 week cup & handle base.
Robert Half
(RHI) was highlighted in the December 2 blog post with a 28.26 buy point. RHI
has since gained 31.7% and broke out of a 5 week flat base this past Thursday.
Food & Beverage: Defensively
oriented food and beverage related groups are showing very strong price
momentum with 6 groups (out of 7 total) ranking in the top 50 of the trailing 5
week price performance list. Over the same 5 week period these same 6 groups
are showing MarketSmith industry group rank improvement from a low of +20 to a
high of +80, yet only two groups are ranked in the top 50. The only group not
participating is the Beverages-Non-Alcoholic group (G2086).
Archer
Daniels Midland (ADM) broke out of 43 week cup & handle base on Thursday in
volume 22% above average. ADM is 2% past its pivot and its dividend yields
2.3%.
Ingredion
Inc. (INGR) is under accumulation with a “B-” Accumulation/Distribution rating
and a 50 day up/down volume ratio of 1.1, although its 25 day ratio is much
stronger at 1.7. Institutional sponsorship has been increasing steadily over
the last 3 quarters 543 > 597 > 655. INGR is 3% past its pivot out of a 9
week cup shaped base.
Hain
Celestial (HAIN) has a lousy “D+” Accumulation/Distribution rating yet has seen
institutional sponsorship increase 344 > 384 > 420 > 438 over the last
4 quarters. The 50 day up down volume ratio is noncommittal at 1.0, but the 25
day ratio is 1.2. HAIN has enjoyed 5 consecutive quarters of +20% sales growth
and +30% EPS growth. Analysts project FY ’13 EPS +33%, FY ’14 +17%. HAIN looks
like a buy on a break above resistance at ~ 62.60.
Machinery: Machinery related groups are
weakening. Four weeks ago there were 4 machinery related groups in the top 50
of MarketSmith’s industry group rankings, now only 1 remains. 4 of the 6
related groups finished in the bottom 50 of the trailing 1 week price performance
list, and 5 of 6 are in the bottom half of the trailing 5 week price
performance list. It appears investors are rotating out of these groups into
other areas.
Follow Up: Two weeks ago in this space the
Sector Trends blog theorized that LNKD would begin to consolidate after the
stock reacted poorly when Goldman Sachs increased its price target. Another data
point in support of this view is the weakness in the Internet-Content
group (G3334). The group is ranked #173 on the trailing 3 week price
performance list with a 2% loss and has dropped -61 in MarketSmith’s industry
group rankings to #107 overall.
