Sector & Group Rotation Notes – 9/8/13

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 Gold/Silver Index	-0.4%	-7.5%	-5.7%	9.4%	-2.5%	-22.7%
Cboe Technology Index	1.8%	-0.4%	-0.5%	0.5%	3.7%	5.3%
Pboe Oil Service Index	4.2%	2.3%	2.9%	0.0%	3.7%	9.3%
Nasdaq Composite	2.0%	0.1%	1.6%	-0.8%	5.5%	12.8%
Russell 1000 Energy Index	1.5%	1.3%	1.7%	-1.2%	1.5%	4.2%
Philadelphia Semiconductor Index	3.8%	2.4%	2.7%	-1.7%	0.8%	9.2%
Russell 2000	1.8%	-0.8%	0.5%	-2.9%	4.2%	9.2%
S&P 500	1.4%	-0.5%	0.0%	-3.2%	0.7%	6.7%
Dow Jones Transportation Index	1.9%	-1.7%	0.0%	-4.2%	0.4%	3.7%
DJIA	0.8%	-0.6%	-1.1%	-4.7%	-2.1%	3.6%
KBW Large Cap Bank Index	1.5%	-2.7%	-2.4%	-5.7%	2.6%	11.6%
Philadelphia Housing Index	2.2%	0.0%	-0.3%	-5.9%	-10.1%	-10.4%
Philadelphia Utility Index	-0.9%	-1.9%	-1.2%	-7.1%	-2.3%	-3.6%

Last week the Nasdaq gained 2% on volume 5% above average, followed by the Russell 2000 +1.8%, the S&P 500 +1.4%, and the Dow +0.8%. The Nasdaq posted solid gains Tuesday through Thursday before finishing with a negligible gain on Friday after volatile post-employment data trading.

Last week’s economic data continued to indicate a strengthening economy. Tuesday’s ISM manufacturing index came in at 55.7 vs. a consensus of 53.8; the second consecutive month 54+, and the best reading in over two years. New orders came in at 63.2, +4.9 from July which was itself +6.4 from June; this also represented the highest new order reading in over 2 ½ years. The exports reading of 55.5 suggested foreign economies are seeing improvement. On Wednesday August auto sales were released, increasing 1.9% to an annual run rate of 16.1 million, the best sales rate since November 2007. Thursday’s non-manufacturing index was the highest yet of the recovery, coming in at a very strong 58.6 building on July’s already strong 56.0. The 58.6 reading not only exceeded the consensus average of 55.0, but even exceeded the high end of the range (57.5).

Thursday’s initial jobless claims data continued to decline, coming in at 323K, near a recovery low; the 4 week average continues to decline and is at a recovery low. Friday’s employment number was weak; suggesting any taper announcement from the FOMC meeting September 18 will be modest and gradual.

The Ishares 20+ Year Treasury ETF (TLT) gained 0.5% on Friday after the employment numbers, but still fell 2.8% for the week. In reaction to the employment news on Friday the Bldg-Resident/Comml group (G1520) was the best performing group for the day with a 2.1% gain, the Finance-Property Reit group (G6730) finished #5 with a 1.3% gain, and the Finance-Mortgage Reit group (G6731) finished #8 with a 1.1% pickup. These groups are still 21%, 16%, and 25% off their recent highs and could stage strong rebounds if investors conclude interest rates have stabilized, or if tapering is more modest than currently expected.

A broader view of industry group performance shows a continued absence of defensive rotation, with technology and commodity related groups performing best. 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)	10	10	10	10	2	4
# in the bottom 50 groups (out of 197)	5	4	4	5	7	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)	11	13	11	13	13	8
# in the bottom 50 groups (out of 197)	3	5	4	2	3	4

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	5	6	4	7	7
# in the bottom 50 groups (out of 197)	12	14	13	15	11	7

Four weeks ago in the August 11^th post the blog wrote “Despite 7 distribution days the Nasdaq continues to lead the S&P 500 in relative strength, and is less than 1% from its most recent high. Economic data shows consistent improvement and there are few signs of defensive rotation. Rising yields should result in additional funds rotating to equities, and increase investor appetite for growth stocks. The view here is that a major pullback in equities is unlikely, and odds are the market moves higher after a period of consolidation. Growth oriented equities should perform particularly well.”

Those same words are as true (and accurate) today as they were four weeks ago. The Nasdaq is now 0.9% off its high, and while Syria and the FOMC announcement will likely create some volatility, the odds favor that the next major move will be a move higher.

Industry Group Performance:

Shipping: Two weeks ago the blog highlighted the improving price performance of transportation related groups, and highlighted Diana Shipping (DSX) and Scorpio Tankers (STNG) out of the Transportation-Ship group (G4411). Last week Diana Shipping (DSX) gained 17.9%, and the Transportation-Ship group finished #3 on the trailing 1 week price performance list with a 5% gain, and over the last 3 weeks has jumped +47 to rank #71 overall in MarketSmith's industry group rankings.

Dry bulk shipping rates have been improving, and the Baltic Dry Index for Capesize ships has broken higher through a multi-year descending trendline as seen in the chart below.

The table below shows the trailing 1 week price performance for the 15 highest percentage gainers from the group with average volume > 200K, and would represent a list for further analysis and review should shipping rates continue to improve.

Symbol	Name	Current Price	% Chg Cur Week	Up/Down Vol	A/D Rating	RS Rating	EPS Rating
EGLE	Eagle Bulk Shipping Inc	5.07	42.0	1.6	A-	97	21
GNK	Genco Shipping & Trading	3.94	39.2	2	A+	97	4
DRYS	Dryships Inc	2.88	23.6	2.9	A+	93	8
NM	Navios Maritime Holdings	7.19	18.3	1.3	A	95	20
DSX	Diana Shipping Inc	12.83	18.1	1.8	A	94	22
BALT	Baltic Trading Ltd	5.21	17.3	2.4	A+	94	6
FRO	Frontline Ltd Adr	2.75	13.6	1.4	B+	72	12
SB	Safe Bulkers Inc	7.33	13.6	1.2	A+	95	12
ANW	Aegean Marine Petroleum	9.9	8.2	1.3	B	89	20
TNK	Teekay Tankers Ltd Cl A	2.67	6.4	1.1	D+	19	20
DCIX	Diana Containerships Inc	3.86	5.5	0.9	D+	4	11
STNG	Scorpio Tankers Inc	9.95	5.5	1.3	C	87	79
NAT	Nordic Amer Tanker Ltd	8.09	5.2	1.3	D	18	1
FREE	Freeseas Inc	0.2	4.6	0.9	C+	1	2
KEX	Kirby Corp	82.77	2.9	1.9	B-	80	74

Scorpio Tankers (STNG) looks very attractive here. STNG is benefitting from its fleet’s exposure to product tankers which are experiencing an improvement in their orderbook. STNG has broken through the descending trendline in its chart that was shown here two weeks ago.

Apparel: Apparel related groups are showing signs of improving price performance, especially the Apparel-Shoes & Rel Mfg group (G3141). Over the trailing 13 weeks the group ranks #37 in price performance with a 10.2% gain, and has jumped +71 in MarketSmith’s industry group rankings to #41 overall.

Hanesbrands (HBI) looks attractive moving off the bottom of 5 week flat base. Despite the fact HBI is 5.9% off its 52 week high from 7 weeks ago, the RS line is at a new high. Analysts forecast FY ’13 EPS +41%, FY ’14 +16%, and institutional sponsorship has increased 445 > 516 > 554 > 570 over the trailing 4 quarters. A/D is “B+”, and the 50 day up/down volume ratio is 2.1.

Quicksilver (ZQK) jumped 31% on 8x average volume Friday after beating earnings Thursday night 0.10 vs. 0.04. Institutional sponsorship (as measured by number of funds with a position) has increased by 32% over the last 2 quarters, 189 > 245 > 249.

Volume has dried up on Fifth & Pacific (FNP) as it rests on its 50 day MA. FNP has a “B+” A/D rating, and fund sponsorship has increased 274 > 310 > 353 over the past 3 quarters. Be on the lookout for a pocket pivot off the 50 day over the next week.

Foreign Banks: The Banks-Foreign group (G1440) has a MarketSmith industry group rank of 192, and ranks #191 on the trailing 26 week price performance list with a 13.7% loss. This may have begun to change this past week as the group finished #2 on the 1 week price performance list with a 6% gain. A review shows a number of constituent banks showing strong accumulation.

Banco Santander (BSAC) gained 11.3% for the week in volume that was 23% above average in only 4 trading days. BSAC was a short interest of 21 days, and on Friday Merrill upgraded BSAC from underperform to buy.

Grupo Financiero Galicia S.A. (GGAL) is under very heavy accumulation with a “B+” A/D rating and a 50 day up/down volume ratio of 2.3, and has delivered an average earnings beat of 5.6% over the past 4 quarters.

 

Electronics: All 4 electronics related groups rank in the top 60 of the trailing 5 week price performance list, continuing the improvement first noted here two weeks ago.

Maxwell (MXWL) continues to show signs of accumulation while the Bollinger Bands have tightened up into a volatility squeeze. A/D rating “B+”, 50 day up/down volume 2.2, 25 day 1.8. Note the strong quarterly EPS and sales increases on the chart below.

This TC2000 chart shows the volatility squeeze.

Flextronics (FLEX) is another name from the group under accumulation: A/D rating “A-“, 50 day up/down volume 2.2 with Bollinger Bands tightening.

This TC2000 chart shows the volatility squeeze.

Stoneridge (SRI) is worth watching for a pocket pivot:

 

Energy: It was another strong week for energy exploration and services groups. Over the past two weeks the Oil&Gas-U S Expl&Prod group (G1310) has jumped +30 in MarketSmith’s industry group ranks to #32 overall. The table below lists the 4 energy related groups showing the best price action over the past week:

		Price Action			MarketSmith Rank
Industry Group	Symb.	1 Week Gain	1 Week Rank
Oil&Gas-Field Services	G1380	3.9%	10		78
Oil&Gas-U S Expl&Prod	G1310	2.7%	33		32
Oil&Gas-Machinery/Equip	G3533	2.7%	36		93
Oil&Gas-Cdn Expl&Prod	G1312	2.6%	45		138

Triangle petroleum (TPLM) is under heavy accumulation and appears to be recovering from its shares offering of 4 weeks ago. Note the massive sales increases in the weekly chart below:

Superior Energy Services (SPN) is seeing heavy buying and even gave us a pocket pivot off the 200 day on Friday. Institutional sponsorship has increased 607 > 663 > 717 over the last 3 quarters.

 

 

Mortgage: The Finance-Mrtg&Rel Svc group (G6151) was discussed last week and finished this past week with a 2.5%, ranking #46 on the trailing 1 week price performance list. Both Ocwen Financial (OCN) and Nationstar (NSM) were highlighted and gained 8% and 4.9% respectively.

Internet: The Internet-Content group (G3334) and the Internet-Network Solutions group (G3586) are ranked #10 and #30 in MarketSmith’s industry group rankings, with the Networking group jumping +51 over the last 5 weeks. Both groups showed strong price action last week rising 4.4% and 3.5% respectively to rank #6 and #17 on the trailing 1 week price performance list.

Logmein (LOGM) is 3.9% off its high but its relative strength line is hitting a new high, and it has developed a volatility squeeze in declining volume.

This TC2000 chart shows the volatility squeeze.

 

Blucora (BCOR) looks like its ready to move back towards 22:

Move (MOVE) actually looks like its seeing some distribution, but with the group so strong it’s unlikely to last. Be on the lookout for a pocket pivot as the 50 day catches up to price.

Webmd (WBMD) has seen heavy buying over the past 2 weeks and has broken higher through a short descending trend line.

YY Inc. (YY) looks good on a move over $45.

 

Machinery: The Machinery-Gen Industrial group (G3569) rose 3.3% last week to rank #19 on the trailing 1 week price performance list, and has increased +59 over the trailing 13 weeks in MarketSmith’s industry group rankings to finish last week at #61.

Flowserve (FLS) is 2% past its pivot out of a 16 week flat base and its also moving higher out of a volatility squeeze in very heavy volume:

 

This TC2000 chart shows the volatility squeeze.

SPX Corp. (SPW) has broke through a descending trendline Friday, +2.8% on volume 150% above average.

Colfax (CFX) A/D rating improved from “D+” to “B-“ last week.

Biotech: The Medical-Biomed/Biotech group (G8063) surged 4.8% last week ranking #4 on the trailing 1 week price performance list, equally its MarketSmith industry group rank of 4.

Medivation (MDVN) jumped 7.3% last week in volume only 1% below average despite only trading for 4 days. Weekly chart below:

Auto: As noted above August auto sales were the strongest since 2007, and groups in the sector are performing well.

Modine Manufacturing (MOD) makes the battery chiller for Tesla’s Model S and is seeing some accumulation. Worth taking a look at on a move above 14.25-ish, weekly chart below.

Telecom: The Telecom Svcs- Foreign group (G4811) ranks #33 on the trailing 5 week price performance list with a 0.5% gain, and over the same time period has jumped +49 in MarketSmith’s industry group rankings to #107 overall. Last week the group gained 3.1% to rank #25 on the trailing 1 week price performance list.

Kongzhong Corp. (KONG) gained 46% for the week in heavy volume.

T I M Participacoes (TSU) gained 11.9% in almost 2x average volume for the week, and looks like it wants more.

Utilities: Although Utility groups bounced a little on Friday, for the week all four groups fnished in the bottom 10 groups based on weekly price performance, and have gotten smoked over the last 5 weeks with group losses ranging from -6.7% to -10.3%. However, the Utility index is now at support, and performance could turn here.