Sector & Group Rotation Notes – 4/28/13

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.

Index	1   Week Gain	2   Week Gain	3    Week Gain	5    Week Gain	13  Week Gain	26  Week Gain
Philadelphia Utility Index	0.6%	1.6%	3.5%	7.2%	12.9%	11.2%
Pboe Oil Service Index	4.3%	-1.3%	3.3%	2.8%	0.5%	12.0%
Philadelphia Semiconductor Index	5.5%	1.5%	5.0%	2.3%	5.9%	19.8%
SP 500	1.7%	-0.4%	1.9%	1.6%	5.3%	12.1%
DJIA	1.1%	-1.0%	1.0%	1.4%	5.9%	12.2%
Nasdaq Composite	2.3%	-0.5%	2.4%	1.1%	4.1%	9.7%
Philadelphia Housing Index	7.9%	2.7%	5.0%	0.4%	1.3%	19.7%
KBW Large Cap Bank Index	3.2%	0.7%	2.6%	-0.1%	4.5%	14.9%
Dow Jones Transportation Index	1.4%	-0.5%	1.3%	-1.0%	4.2%	21.1%
Russell 2000	2.5%	-0.8%	1.3%	-1.2%	3.3%	15.0%
Russell 1000 Energy Index	3.1%	-1.1%	-0.2%	-1.9%	-0.6%	5.9%
Cboe Technology Index	2.9%	-3.3%	-2.3%	-5.7%	-1.4%	-3.6%
Philadelphia Gold/Silver Index	3.3%	-8.6%	-15.7%	-22.4%	-29.5%	-41.8%

The markets recovered somewhat last week led by the builders, semiconductors, and to a lesser extent energy names. In a positive sign the more speculative Nasdaq and Russell 2000 indexes outperformed the S&P 500.

Earnings winners from the past week include Stamps.com +40.5%, Boyd Gaming +35.2%, Netflix +31.9%, Lumber Liquidators +22.7%, and  numerous others. In the homebuilders DR Horton, Pulte, Ryland and Meritage Homes all popped 18%+ for the week.

Companies reporting next week include LinkedIn, Tredegar, US Silica, Magnachip, Fleetcor, Ocwen, Yelp, Hertz, Three D Systems, Sinclair, Shutterfly, Bloomin' Brands, and Sourcefire.

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)	8	5	4	2	3	4
# in the bottom 50 groups (out of 197)	3	10	12	15	13	13

28 Technology Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	14	4	5	3	4	4
# in the bottom 50 groups (out of 197)	4	10	9	10	12	9

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	10	8	14	15	9
# in the bottom 50 groups (out of 197)	18	6	5	2	1	4

Defensive groups took a step back last week and technology oriented groups took a step forward. Defensively oriented groups still predominate over the 5 and 13 week time periods.

Industry Group Performance:

Apparel: The Sector Trends blog first pointed out the emerging strength in the Apparel-Shoes & Rel Mfg group (G3141) 5 weeks ago, and 3 weeks ago wrote “it seems likely this group is headed for a 40+ MarketSmith industry group rank in the near future.” This past week the group jumped +40 spots in MarketSmith’s industry group rankings to #29 overall, and since it was first mentioned 5 weeks ago has jumped +110 spots.

3 weeks ago the blog also wrote “The Apparel-Clothing Mfg group (G2300) has been an underperformer with an industry group rank of #162 and a relative strength of 19. However, the group actually gained 0.2% both Wednesday and Friday of last week as the market was picking up distribution days, Wednesday's gain occurred in volume 25% above average. This display of relative strength during the midst of very poor market performance suggests the group could begin to see improved performance.”

Last week the group gained 4.1% to rank #40 on the trailing 1 week price performance list, and jumped +44 in MarketSmith’s industry group rankings to #116 overall. Helping to spur the move was Coach’s (COH) earnings results. In the previous quarter COH had disappointed, but on Tuesday they released results that beat on both earnings (0.84 vs. 0.81) and revenues (1.19B vs. 1.18B), and mentioned China sales saw a 40% YOY increase. COH gained 9.8% on the day and 12.1% for the week.

Under Armour (UA) has a 58.52 pivot out of a 32 week cup & handle base, and is seeing very heavy accumulation. UA has a “B+” accumulation/distribution rating with a 50 day up/down volume ratio of 1.5 and a 25 day ratio of 2.3. 

 

Quicksilver (ZQK) is another apparel manufacturer showing accumulation. ZQK has a “B+” accumulation/distribution rating, a 50 day up/down volume ratio of only 0.8 but a 25 day ratio of 1.2. FY ’13 EPS forecast +225%, FY ’14 +154%.

Michael Kors (KORS) gained 5.7% for the week but in below average volume. It appears KORS could be shaping the bottom of a cup shaped base. Up/down volume ratios are poor, consistent with what you would expect in bottoming action. 

Internet: The two groups in the internet sector have been residing at opposite ends of the performance spectrum with the Internet-Content group (G3334) ranked #7 in MarketSmith’s industry group rankings, and the Internet-Network Solutions group (G3586) ranked #174. Short term price performance has supported those ranks, over the trailing 13 weeks the content group ranks #11 with a 14.8% gain, and the network group ranks #193 with a 12.9% loss.

Reaction to earnings releases last week suggests a continued appetite for content companies, and perhaps a turning point with regard to the networking companies. In the content group Angie’s List (ANGI) gained 21.5% on the week, and Yandex (YNDX) gaining 24.8%, helping the group see its way to 1.9% weekly gain. The network group enjoyed a 4.4% gain, good enough to rank #33 on the trailing 1 week price performance list, helped along by earnings gains from Akamai (AKAM) +27% for the week, and Logmein (LOGM) +26.2%.

LinkedIn (LNKD) was highlighted in the January 13 and January 27 blog posts, and has gained 60% from its 117.32 buy point. LNKD is scheduled to announce this Thursday May 2. LNKD is still showing accumulation with a “B+” accumulation/distribution rating, a 50 day up/down volume ratio of 1.2 and a 25 day ratio of 1.3.

Bankrate (RATE) is a former leader fallen on hard times that’s been bottoming/consolidating since last October. However, RATE is now showing signs of strong accumulation. Despite the fact RATE is 43% off its 52 week high it sports an “A-“ accumulation/distribution rating suggesting institutional accumulation over the trailing 13 weeks. Its 50 day up/down volume ratio is 1.4, the 25 day ratio is 1.3, and RATE gained 2.5% last week in volume 36%above average. RATE is scheduled to release earnings results this Tuesday 4/30 AMC. 

Infoblox (BLOX) is a recent IPO from the network group seeing some modest accumulation with a "B+" accumulation/distribution rank and steady sponsorship increases. BLOX has seen strong earnings and sales gains over the past two quarters, and has a 22.96 pivot out of a 9 week consolidation.

Energy: The Oil&Gas-Refining/Mktg group (G2900) still ranks #33 in MarketSmith’s industry group rankings but has poor short term price performance, ranking #151 over the trailing 5 weeks with a 3.7% loss. Additionally, of the 10 stocks in the group with 90+ RS ratings 8 of them have accumulation/distribution rankings of “D” or “E”, indicating institutional distribution over the trailing 13 weeks.

The group is composed of 40 companies, and next week almost half of them (19) release earnings results. In the previous quarter the market reacted positively to the group’s earnings announcements, with numerous strong gains. Reaction to Monday’s reports from Marathon (MPC), Valero (VLO), and UGI Corp (UGI) should give the reader insight into the market’s current perspective on the group +/-, perhaps setting up trades, long or short, for later in the week.

Retail: This blog first pointed out the emerging strength in the retail sector 3 weeks ago in the April 7th blog post, and again two weeks ago April 14. That strength has continued as over the past 3 weeks the sector has placed 13 of its 20 industry groups into the top 50 of the trailing 3 week price performance list, and now has 6 groups ranked in the top 50 of MarketSmith's industry group rankings vs. 1 only 7 weeks ago.

Unfortunately, in order to keep the blog's publishing deadline it's too late to post any charts, but give these groups a hard look and you will find the set ups. Moderately priced steakhouses seem to be picking up interest, see BLMN and TXRH.