Sector & Group Rotation Notes – 3/3/13

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	0.8%	2.1%	1.8%	2.5%	5.9%	2.1%
Philadelphia Semiconductor Index	0.0%	-0.8%	0.1%	2.3%	13.6%	7.3%
Dow Jones Transportation Index	0.7%	0.6%	1.2%	2.0%	16.9%	19.5%
DJIA	0.6%	0.8%	0.7%	1.4%	8.2%	7.6%
Russell 2000	-0.2%	-0.9%	0.1%	1.0%	11.3%	12.6%
SP 500	0.2%	-0.1%	0.0%	1.0%	7.2%	7.9%
Nasdaq Composite	0.3%	-0.7%	-0.8%	0.6%	5.3%	3.4%
Cboe Technology Index	-0.9%	-1.6%	-2.4%	0.6%	-2.7%	-7.2%
KBW Large Cap Bank Index	-0.6%	-1.7%	-1.5%	0.1%	11.5%	14.7%
Russell 1000 Energy Index	-0.4%	-0.8%	-1.3%	-0.2%	8.2%	7.6%
Pboe Oil Service Index	-1.7%	-4.1%	-2.8%	-1.4%	10.6%	7.9%
Philadelphia Housing Index	0.4%	-4.5%	-1.9%	-4.6%	9.4%	25.0%
Philadelphia Gold/Silver Index	-2.2%	-7.4%	-12.6%	-11.6%	-21.7%	-21.5%

On Monday the market started the week with a massive distribution day when the Nasdaq reversed to finish down 1.4% after being up 0.8 in volume approximately 20% heavier than the previous day. On Tuesday Ben Bernanke reaffirmed the Fed's easy money policy and the market bounced higher in lower volume Tuesday and Wednesday before reversing again on Thursday in higher volume. On Friday the markets gapped lower but recovered after the release of consumer sentiment  data and the ISM Manufacturing Index, both of which exceeded expectations.

The sloppy price action in the market speaks to investor indecision, and combined with the continued defensive rotation seen last week suggests the markets have further to pull back.

Next week 356 companies announce their earnings results, 76 with market caps $1B+. Names to watch include Delek, Alon, Hovnanian, Nationstar, Qihoo, Pandora, Thor, and Workday.

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)	4	2	2	3	6	9
# in the bottom 50 groups (out of 197)	15	15	15	11	7	8

28 Technology Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	6	6	7	7	8	1
# in the bottom 50 groups (out of 197)	10	9	10	13	8	13

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	12	15	12	13	6	7
# in the bottom 50 groups (out of 197)	4	1	2	0	6	10

Last week's analysis expressed some skepticism regarding the defensive rotation, as seen above this  week's data makes that skepticism harder to maintain.

Industry Group Performance:

Energy: As the table above demonstrates commodity related groups have fallen out of favor and Energy sector groups are no exception. For the week 8 of 13 finished in the bottom 50, and solar led all groups getting pounded -13.7% for the week. Refiners (G2900) and Machinery & Equipment (G3533) continue to hold up well.

An interesting anomaly last week was the performance of the Oil&Gas-Canadian Expl&Prod group (G1312) which has recently been pounded, 58% off its two year high and ranked #194 in MarketSmith's industry group rankings. For the week the group ranked #5 on the 1 week price performance list with a 3.3% gain, perhaps helped along by the State Department's most recent Keystone Pipeline report released this past Friday. As the group's chart demonstrates the group could be close to breaking a 2 year descending trend line.

Enerplus (ERF) is 43.7% off its 52 week high, yet has an "A-" accumulation/distribution rating, a 50 day up/down volume ratio of 1.4, and a 25 day ratio of 1.7. ERF is approaching resistance at 13.80 for the fourth time and might run a bit if it breaks through with volume.

Healthcare: Numerous groups in the healthcare sector are showing positive short term price momentum, particularly Medical-Biomed/Biotech (G8063), Medical-Ethical Drugs (G2830), Medical-Generic Drugs (G8064), Medical-Research Eqp/Svc (G8058), Medical-Products (G2831), Medical-Services (G1044), Medical-Long-Term Care (G8059), and Medical-Whlsle Drg/Supply (G5022). Groups from this sector offer  growth, and with the exception of Biotechs are defensively oriented, perhaps making them more appropriate choices in the current market environment. The following stocks are culled from these 8 groups.

Incyte (INCY) has a 22.82 pivot out of a first stage cup & handle base. INCY is seeing some accumulation with a "B+" accumulation/distribution rating, a 50 day up/down volume ratio of 1.8, and a 25 day ratio of 1.9.

Santurus (SNTS) is up 73% since its September breakout, and has consolidated for the past 5 weeks offering a potential buy point of ~ 13.65. SNTS is experiencing very strong accumulation with an "A" accumulation/distribution rating, a 50 day up/down volume ratio of 1.5 and a 25 day ratio of 1.7. Institutional sponsorship has increased 126 > 144 > 172 > 192 over the past 4 quarters, and analysts project FY '12 EPS +186%, FY '13 +250%. SNTS is scheduled to report earnings this Monday (tomorrow) after the market closes.

Catamaran (CTRX) is 3% past it's pivot out of a 9 week consolidation. Institutional sponsorship has grown significantly over the past 4 quarters from 598 funds in March to 934 at the end of December. CTRX has a "B-" accumulation/distribution rating, a 50 day up/down volume ratio of 1.1, and a 25 day ratio of 1.4. Analysts project FY '13 EPS +58%, and FY '14 +26%.

United Therapeutics (UTHR) is seeing heavy accumulation with a 50 day up/down volume ratio of 1.7, and a 25 day ratio of 2.5, and a "A" accumulation/distribution rating. UTHR is 3% past its 59.00 pivot. Weekly chart:

 

Baxter International (BAX) might have some potential out of this ascending triangle:

Amgen (AMGN) could have potential as it moves out of this 7 month channel. The 50 day up/down volume ratio is 1.0, but te 25 day ratio is 2.2.

Software: Software related groups have been substandard performers with all 10 of the groups residing in the bottom half of MarketSmith's industry group rankings. However, these group's performance may be starting to turn as 3 of the groups rank in the top 30 of the trailing 13 week price performance list, and 5 groups rank in the top 42 of the trailing 3 week price performance list.

AVG Technologies (AVG) is a recent security software IPO on the cusp of new highs. Analyst's project FY '13 EPS +28%, FY '14 +16%. AVG has a trailing PE of 11 and a 16.39 pivot.

Verisign (VRSN) is under accumulation with a "B+" accumulation/distribution rating and a 50 day up/down volume ratio of 2.2, and a 25 day ratio of 2.9. VRSN has a 46.70 pivot out of a cup & handle base.

Workday (WDAY) came public in early October and is already owned by 370 funds. WDAY hit a new high on Friday as it broke out of an 18 week consolidation, and announces earnings this Thursday BMO. WDAY is seeing some accumulation with a 50 day up/down volume ratio of 1.0, and a 25 day ratio of 1.6, and a "A-" accumulation/distribution rating.

Allscripts (MDRX) broke higher though its descending trend line on the weekly chart two weeks ago, and has set up a 12.96 pivot out of a cup & handle on the daily: