Sector & Group Rotation Notes – 4/14/13

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	1.8%	3.1%	5.5%	7.0%	13.9%	9.7%
DJIA	2.1%	2.0%	2.4%	3.3%	10.2%	11.5%
SP 500	2.3%	1.3%	2.1%	2.4%	7.9%	11.2%
Pboe Oil Service Index	4.7%	1.6%	4.1%	1.9%	7.4%	12.6%
Nasdaq Composite	2.8%	0.8%	1.5%	1.6%	5.4%	8.2%
Russell 2000	2.1%	-0.9%	-0.4%	0.0%	7.0%	14.6%
Dow Jones Transportation Index	1.8%	-1.8%	-0.6%	0.0%	10.2%	21.8%
Philadelphia Semiconductor Index	3.5%	-0.7%	0.8%	-0.4%	7.6%	18.2%
KBW Large Cap Bank Index	1.9%	-0.1%	-0.7%	-0.7%	5.7%	12.4%
Russell 1000 Energy Index	0.9%	-1.5%	-0.8%	-0.7%	4.7%	6.2%
Cboe Technology Index	1.0%	-2.1%	-2.5%	-0.9%	-1.0%	-3.4%
Philadelphia Housing Index	2.3%	-1.6%	-2.2%	-0.9%	3.5%	20.7%
Philadelphia Gold/Silver Index	-7.7%	-14.3%	-15.0%	-12.7%	-28.8%	-37.1%

The markets enjoyed strong price performance last week; led by the Nasdaq’s 2.8% gain. The S&P 500. DJIA, and Russell 2000 all added +2%.

Despite the new highs and solid gains the market is still showing signs of weakness. Tech stocks participated on Wednesday as the Cboe Technology Index gained 1.7%. But Thursday Fortinet fell 13% after missing on both earnings and revenues, and IDC announced falling PC shipments stating "the extent of the year-on-year contraction marked the worst quarter since IDC began tracking the PC market quarterly in 1994". The tech index fell 2% over Thursday & Friday to finish the week up only 1%.

The rally which started in late November was initially led by the Russell 2000, and the February 17 blog post noted how the Russell 2000 over the trailing 13 week period had outperformed the other major indexes by over 50%. Over the current trailing 13 week period the Russell 2000 trails the DJIA by 31% and trails the Utility Index by almost 50%.  This narrowing of the market, with its evident preference for income over growth, is not a signature of a strong & healthy market.

Economic data's impact on the market should start to take back seat to earnings as first quarter earnings releases pick up over the coming weeks. Last week Alcoa reported after Monday's close announcing better than expected earnings while also affirming its 2013 global aluminum growth forecast of 7%. The Mining-Metal Ores group (G1099) rallied almost 4% Tuesday & Wednesday before giving most of it back Thursday & Friday to finish the week up only 1%.  

Wells Fargo and JP Morgan announced Friday, reporting earnings that beat expectations but with revenues that missed; they fell 0.8% and 0.6% respectively in elevated volume.  Readers may find these banking articles from the NY Times and Reuters of interest.

Next week sees a heavy concentration of releases from the banking sector including Citigroup, Bank of America, Goldman Sachs and Morgan Stanley. Tech sees reports from IBM, Intel, Sandisk, IXIA, Google, Microsoft,  & Yahoo among numerous others. In the energy sector Schlumberger and Baker Hughs both report, and could influence the performance of other oil field service & equipment names. Retail will hear from McDonalds, Chipotle, & Ebay. Railroads CSX, Union Pacific and Canadian Pacific all report, and Verizon is among the first telecoms to report.

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	4	3	3	3	5
# in the bottom 50 groups (out of 197)	15	16	15	15	16	11

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	3	2	1	2	4
# in the bottom 50 groups (out of 197)	5	13	10	12	12	12

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	7	11	10	17	15	10
# in the bottom 50 groups (out of 197)	5	2	3	1	0	6

Commodity oriented groups performed poorly, and to a lesser extent so did the tech oriented groups. Defensively oriented groups performed well considering the strength in the averages.

Industry Group Performance:

Retail: Last week’s blog pointed out the improving performance of retail related industry groups. That continued this past week with 11 groups finishing in the top 50 of the 1 week price performance list, and only 4 in the bottom 50 (out of 20 overall). The groups that finished in the top 50 all gained over 3% for the week, with the Retail-Specialty  group (G5391) leading with a 5.6% gain. 5 weeks ago there was only 1 retail group in the top 50 of MarketSmith’s industry group rankings, this week there are 5. Helping to drive the performance was Thursday’s data indicating comp store sales performance had met or in some cases exceeded expectations.

Last week’s blog highlighted the heavy short term accumulation seen in Gap Stores, (GPS), and this past week GPS gained 4.2% and is now 4% past its pivot. The blog also tweeted this set up last Tuesday.

Buffalo Wild Wings (BWLD) is seeing heavy accumulation with an accumulation/distribution rating of “A” and a 50 day up/down volume ratio of 2.2. BWLD looks attractive at current levels.

Panera Bread (PNRA) saw strong accumulation last week as it pulled away from its 175.26 buy point. PNRA is now 5% past its pivot but would be attractive if we get a pull back into the high 170’s.

GNC Holdings (GNC) is 1% past its 42.83 pivot and is seeing solid accumulation with an accumulation/distribution rating of “B” and a 50 day up/down volume ratio of 1.6. EPS forecast +20% FY ’13, +19% FY ’14.

Ebay (EBAY) is trading right at its 57.27 pivot out of a 9 week flat base. EPS are due next Wednesday.

Tractor Supply (TSCO) is 2% past it’s pivot.

Recent IPO Bloomin Brands (BLMN) gained 12.9% for the week in volume 80% above average. BLMN would be attractive on a pullback towards $20, perhaps we’ll get a flag here.

L Brands (LTD) (Bath and Body Works, Victoria’s Secret) is seeing very strong short term accumulation. The 50 day up/down ratio is 1.0, but the 25 day ratio is 2.1. On Thursday LTD reported same store sales +3%. RW Baird rates shares outperform and believes LTD has an opportunity to grow underpenetrated categories domestically and eventually penetrate markets overseas.

Urban Outfitters could be attractive out of this second stage double bottom base. Note how the relative strength line has broken its descending trendline.

 

Apparel: Apparel related groups continued the improved performance first noted here 3 weeks ago. The Apparel-Shoes & Rel Mfg group (G3141) ranked #25 on the 1 week price performance list with a 3.9% gain, and the Apparel-Clothing Mfg group (G2300) ranked #59 gaining 2.8%.  On the 3 week price performance list Apparel-Shoes & Rel Mfg ranks #13, +5.1%, and Apparel-Clothing Mfg ranks #37, +3%.

Skechers (SKX) has a 22.50 pivot out of this double bottom base. Note the strong sales and earnings performance in the most recent quarter, and the healthy analyst EPS projections.

 

Under Armor (UA) was featured in last week’s blog and gained 7.5%. Hopefully someone ignored the blog’s opinion to wait until after earnings 4/19… Weekly chart below.

 

Carter’s (CRI) is seeing heavy accumulation as it builds the right side of this cup shaped base. CRI has a 61.22 pivot.

On Thursday Michaels Kors (KORS) broke the descending trend line noted in last week’s blog, but fell back again on Friday. Monday should be a telling day.

Leisure: The Leisure-Travel Booking group (G7903) and Leisure-Lodging group (G7011) have MarketSmith industry group rankings of #85 and #104 respectively, yet both are showing strong short term price performance with rankings in the top 50 of the trailing 1, 3, and 13 week price performance list’s. Performance in the travel group was led by Priceline (PCLN) which gained 7.2% last week, although a cautionary Barron’s article yesterday could put a damper on PCLN’s performance next week.

Kayak (KYAK) looks good here. Note the RS lines descending trend line break. Accumulation is strong with a 50 day up/down ratio of 1.8 and a 25 day ratio of 2.0.

Energy: Last week production related groups lagged the market with minor gains, but the Oil&Gas-Machinery/Equip group (G3533) and Oil&Gas-Field Services group (G1380) enjoyed solid 5% and 3.1% gains on the back of GE’s cash offer of 88.50 per share for Lufkin Industries (LUKF). GE’s offer represented ~ a 38% premium to last week’s closing price.