Sector & Group Rotation Notes – 8/4/13

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
KBW Large Cap Bank Index	1.5%	1.4%	3.8%	9.0%	17.6%	22.3%
Cboe Technology Index	2.3%	3.5%	3.6%	9.0%	3.9%	6.7%
Russell 2000	1.1%	0.9%	2.3%	8.4%	11.0%	16.3%
Nasdaq Composite	2.1%	2.8%	2.5%	8.4%	9.2%	16.1%
Dow Jones Transportation Index	2.8%	1.0%	3.3%	7.7%	7.0%	13.6%
SP 500	1.1%	1.0%	1.8%	6.4%	5.9%	13.0%
Russell 1000 Energy Index	0.0%	-0.8%	1.4%	6.0%	4.3%	5.8%
Pboe Oil Service Index	1.8%	-1.7%	0.2%	5.8%	4.6%	6.7%
DJIA	0.6%	0.7%	1.3%	5.0%	4.6%	11.8%
Philadelphia Gold/Silver Index	-6.6%	-0.7%	5.2%	4.5%	-12.5%	-38.0%
Philadelphia Utility Index	0.3%	-0.2%	1.5%	4.0%	-4.3%	6.8%
Philadelphia Semiconductor Index	2.2%	-0.6%	-1.3%	3.2%	7.2%	14.9%
Philadelphia Housing Index	2.7%	-2.5%	-3.0%	1.5%	-8.8%	-3.6%

Another strong week as the Dow, S&P and Nasdaq closed at new highs, and the Russell 2000 closed a fraction off Thursday's new high.

Economic data for the past week was largely positive. Wednesday's ADP Employment indicated 200,000 jobs added versus 179K expected, and June was revised up by 10,000 jobs. GDP report was stronger than forecast, with an increase of 1.7% vs. a consensus expectation of 1.1%. But later that afternoon the FOMC statement made no reduction in quantitative easing and downgraded its characterization of the economy to "economic activity expanded at a modest pace" versus the last statement's "economic activity expanded at a moderate pace."

Jobless claims released Thursday morning came in ~ 20K below expectations. Thursday's ISM's manufacturing purchasing managers' index rose to 55.4 in July from 50.9 in June, expanding at its fastest pace in 13 months. July's reading was the highest since June 2011; economists had expected the latest PMI to come in at 52.0. Thursday's PMI Manufacturing Index also exceeded the 52.1 - 53.5 consensus range coming in at 53.7, with new orders at 55.5, 2 points greater than June. This strength was tempered by Friday's weak employment numbers of 162K vs. a consensus expectation of 175K.

1285 companies reported earnings last week, with an average weekly gain of 0.91%. Key earnings related gainers for the week included YELP +35%, QCOR +30%, MAKO +24%, TRLA +19%, SSNI +19%, SREV +16%, MX +15%, MELI +14%, SODA +14%, GTLS +13%, and LNKD +13%.

Next week 1132 companies report earnings, including Disney, Time Warner, Priceline, EOG, Tesla, Solar City, Green Mountain Coffee, Cree and Acadia Pharmaceuticals. Announcements will be especially heavy in the energy sector with 37.3% of companies reporting, and specifically for the Oil&Gas-U S Expl&Prod group which has 54% of its constituent companies reporting. In the medical sector 32.4% of companies will report, led by the Medical-Biomed/Biotech group with 36.5% of its constituent companies reporting.

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	5	5	3	3
# in the bottom 50 groups (out of 197)	11	11	11	8	13	16

28 Technology Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	11	12	10	12	11	8
# in the bottom 50 groups (out of 197)	5	6	8	6	4	7

30 Defensively Oriented Groups:	1 wk	2 wk	3 wk	5 wk	13 wk	26 wk
# in the top 50 groups (out of 197)	4	7	7	4	6	7
# in the bottom 50 groups (out of 197)	7	8	2	10	7	2

The performance of tech oriented groups has improved, driven primarily by groups from the software, computer and internet sectors.

Industry Group Performance:

Tech: The Sector Trends blog has been highlighting the strength in the tech area for the past several months. Two weeks ago the blog wrote "current industry group price action it appears investor appetite for tech oriented names has begun to wane. Semiconductors in particular look weak". Performance over the past two weeks suggest what the blog interpreted as a "wane" was just a lull, although the observation regarding semiconductors was partially accurate.

Semiconductors: Semiconductor performance has been mixed. The performance of the Elec-Semicondctor Fablss and Elec-Semiconductor Equip groups has been poor, ranking #192 and #191 on the trailing two week price performance list, and #174 and #164 over the trailing 5 weeks.

The Elec-Semiconductor Mfg group has performed much better, ranking #44 over the past week in price performance, #80 over two weeks, and # 68 over 5 weeks.

This performance disparity has been driven by investor's reaction to earnings announcements. The table below shows the average weekly gain/loss for a stock announcing earnings from the three groups (price > $5, avg. volume > 150K).

Industry Group	Average Gain	# Reporting	# with a positive return	% with a positive return
Semiconductors	-0.2%	60	31	51.7%
Elec-Semiconductor Mfg	2.5%	22	15	68.2%
Elec-Semicondctor Fablss	-1.1%	27	13	48.1%
Elec-Semiconductor Equip	-3.4%	11	3	27.3%
Grand Total	-0.2%	60	31	51.7%

As the table demonstrates results from the Elec-Semiconductor Mfg group have been well received, while in the aggregate results from the other groups have not been well received.

This table shows stocks from the sector that report next week. CREE looks like a high probability choice to receive a warm response from investors post earnings announcement. Note: MarketSmith indicates 8/7 as the earnings date, CREE web site 8/13. Do your due diligence.

Symbol	Name	EPS Rating	RS Rating	A/D Rating	Up/Dn Vol	Industry Name	EPS Due Date
SPRD	Spreadtrum Comm Inc Ads	57	93	A+	1.9	Elec-Semicondctor Fablss	08-06-2013
VTSS	Vitesse Semiconductor	11	85	B+	2.3	Elec-Semicondctor Fablss	08-06-2013
PSEM	Pericom Semiconductor	18	45	A-	1.5	Elec-Semicondctor Fablss	08-06-2013
MEMS	M E M S I C Inc	20	92	B+	1.7	Elec-Semicondctor Fablss	08-05-2013
MPWR	Monolithic Power Systems	62	71	C+	0.9	Elec-Semicondctor Fablss	08-06-2013
ACTS	Actions Semiconductr Ads	12	80	C	0.8	Elec-Semicondctor Fablss	08-07-2013
RDA	R D A Microelectrncs Ads	58	55	C	0.9	Elec-Semicondctor Fablss	08-06-2013
PXLW	Pixelworks Inc	1	89	C+	0.7	Elec-Semicondctor Fablss	08-06-2013
TXCC	Transwitch Corp	53	2	C-	0.9	Elec-Semicondctor Fablss	08-08-2013
NVDA	Nvidia Corp	93	55	D-	0.6	Elec-Semicondctor Fablss	08-08-2013
ESIO	Electro Scientific Ind	67	51	C+	1.3	Elec-Semiconductor Equip	08-06-2013
ASYS	Amtech Systems Inc	18	96	A-	2.3	Elec-Semiconductor Equip	08-08-2013
KOPN	Kopin Corp	51	42	B+	1.7	Elec-Semiconductor Equip	08-06-2013
EMKR	Emcore Corp	27	17	B+	1.2	Elec-Semiconductor Equip	08-06-2013
BRKS	Brooks Automation	9	45	D+	1.2	Elec-Semiconductor Equip	08-08-2013
STEC	S T E C Inc	1	90	B	2.3	Elec-Semiconductor Mfg	08-07-2013
CREE	Cree Inc	93	97	B	1.6	Elec-Semiconductor Mfg	08-07-2013
DIOD	Diodes Incorporated	76	91	B-	1.3	Elec-Semiconductor Mfg	08-07-2013
RBCN	Rubicon Technology Inc	25	59	C-	0.9	Elec-Semiconductor Mfg	08-07-2013
SMI	Semicondctr Mfg Intl Adr	79	89	D+	0.6	Elec-Semiconductor Mfg	08-08-2013
TSEM	Tower Semiconductor Ltd	18	1	D+	0.6	Elec-Semiconductor Mfg	08-08-2013

Networking: The Sector Trends blog first highlighted the strength in the Computer-Networking group (G3574) six weeks ago in the June 23 blog post. At the time the group ranked #173 in MarketSmith's industry group rankings, and #159 on the trailing 13 week price performance list with a -3.0% loss. The group now has a MarketSmith industry group rank of #115 (+58), and ranks #45 on the trailing 13 week price performance list with a 16.8% gain.

The June 23 post highlighted three stocks from the group: SSNI (+49.5%), RKUS (+24.3%), and XXIA (-15.3%). Each of the three was impacted by earnings: SSNI and RKUS spiked higher, and XXIA fell after pre-announcing.

Allot Communications (ALLT) was featured in the June 30 blog post and gained 15.5% before forming a descending channel - ALLT is currently +5.7% from June 30. AALT is scheduled to announce earnings this Tuesday 8/6, BMO, and shares a number of characteristics with RKUS prior to its earnings announcement. Prior to its announcement RKUS had an "A-" A/D rating, Up/Down volume ratio of 1.0, and a descending channel on its chart. ALLT currently has an "A-" A/D rating, Up/Down volume ratio of 1.1, and a descending channel on its chart.

 

Charts:

Bazaarvoice (BV) was first highlighted in the June 2 blog post and has since gained 51.7%. BV has broken above short term resistance at 11.04 and appears headed higher.

Fusion-Io (FIO) is a former momentum trade fallen on hard times. FIO is 54.7% off its 52 week high and has a very poor RS rating of 5. However, despite these abysmal numbers FIO is seeing some interest with an A/D rating of "B" and a 50 day up/down volume ratio of 1.3. FIO is scheduled to release earnings results this Wednesday 8/7 AMC, and could be worth considering on a move above 15.45 in heavy volume.

Mako Surgical (MAKO) was highlighted in the June 2 blog post: "Mako Surgical (MAKO) is another fallen star from early 2012 that has put in a solid bottom and is starting to see accumulation. Although MAKO is ~ 73% off its 2012 high, it has an "A-" accumulation/distribution  rating, a 50 day up/down volume ratio of 1.7, and a 25 day ratio of 2.3. MAKO looks like a buy above 12.50, with a secondary but point at 13.45."

MAKO released 2nd quarter earnings results last Tuesday after the bell and shares took off in heavy volume. The Fly on the Wall news service reported "Piper Jaffray believes MAKO Surgical's Q2 results bring the company closer to restoring investor confidence. Piper said robot sales topped expectations while procedures were in line. The firm raised its price target for shares to $26 and reiterates an Overweight rating on the stock."

Valeant Pharmaceuticals (VRX) is 2% past its pivot out of a cup & handle base.

Biogen Idec (BIIB) has a 234.74 pivot out of a cup & handle base. BIIB announced quarterly earnings results July 25.

Actavis (ACT) was highlighted in the June 30 blog post and still looks good here, 2% past a 133.00 pivot out of a 9 week flat base.

Bonanza Creek Energy (BCEI) looks attractive here. BCEI announces earnings results next week.

Boulder Brands (BDBD) has struggled to produce EPS that matched its aggressive sales increases, but after last Thursday morning's earnings release that could be changing. BDBD looks extended here, but worth considering if we see a flag develop over the coming days. Analysts forecast FY '13 EPS +50%, FY  '14 +47%.

Encore Capital (ECPG) is 4% past its pivot out of a cup & handle base and is under heavy accumulation. A/D rating is "B-", and the 50 day up/down volume ratio is only 1.0, but the 25 day ratio is very strong at 2.7.

Mastec (MTZ) has been featured here several times over the past 9 months and looks like a solid choice here.

 

SLM Corp. (SLM) has a 25.14 pivot out of this cup & handle base. SLM is under heavy accumulation with an A/D rating of "A-". The 50 day up/down volume ratio is only 1.1, but the 25 day ratio is a very strong 2.2

Westlake Chemical (WLK) looks good on a break higher out of this small flag.