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
|
|
Dow Jones Transportation Index
|
2.6%
|
5.4%
|
6.0%
|
4.7%
|
8.3%
|
14.6%
|
|
Nasdaq Composite
|
0.7%
|
4.0%
|
3.6%
|
4.5%
|
9.1%
|
20.3%
|
|
Russell 2000
|
0.3%
|
3.1%
|
3.7%
|
4.2%
|
6.7%
|
19.6%
|
|
Philadelphia Gold/Silver Index
|
8.2%
|
15.0%
|
10.4%
|
4.1%
|
-1.1%
|
-6.2%
|
|
Philadelphia Utility Index
|
1.8%
|
2.5%
|
5.3%
|
4.0%
|
-0.8%
|
-5.7%
|
|
Pboe Oil Service Index
|
-1.8%
|
1.5%
|
1.6%
|
3.7%
|
7.8%
|
15.0%
|
|
Philadelphia Housing Index
|
4.3%
|
5.7%
|
6.2%
|
3.1%
|
6.8%
|
-2.7%
|
|
Cboe Technology Index
|
0.8%
|
1.3%
|
2.5%
|
3.1%
|
6.7%
|
14.1%
|
|
S&P 500
|
0.9%
|
3.3%
|
4.1%
|
2.9%
|
4.0%
|
11.2%
|
|
Russell 1000 Energy Index
|
1.0%
|
2.6%
|
3.2%
|
2.9%
|
3.8%
|
11.3%
|
|
KBW Large Cap Bank Index
|
-1.0%
|
2.0%
|
3.0%
|
2.0%
|
-1.7%
|
14.6%
|
|
DJIA
|
1.1%
|
2.2%
|
3.3%
|
0.8%
|
0.1%
|
5.8%
|
|
Philadelphia Semiconductor Index
|
-2.0%
|
-0.2%
|
-0.3%
|
0.6%
|
4.9%
|
12.8%
|
Late Tuesday
evening 10/22 the blog tweeted the "character of the market is
changing, high RS stocks lagging, low RS stocks leading, nascent signs of
defensive rotation. Not good signs." The market did indeed change character last week, and not for the
better. On first glance it would appear everything is hunky-dory as all of the
major broad based market indexes posted gains for the week: DJIA +1.1%, S&P
500 +0.9%, Nasdaq +0.7%, and Russell 2000 +0.3%. Unfortunately, that's not the
case. Turkeys started flying last week, and that's usually not a good thing.
One market
negative last week was the underperformance of the Nasdaq and Russell 2000.
Over the trailing 13 week period the Nasdaq's performance is more than double
that of the S&P 500, and the Russell 2000 has beaten the S&P by 67%
over the same time period. But that is changing, as over the trailing 3 weeks
the S&P 500 now leads, +4.1% vs. +3.6% for the Nasdaq and +3.7% for the
Russell 2000. The market always performs best when the Nasdaq is outperforming
the S&P 500.
A second
negative is that the Nasdaq stalled last week. Although technically the index gained 0.7%,
this was due to the performance of only 3 of its most heavily weighted stocks;
if you back out the performance of AAPL, MSFT, and AMZN the Nasdaq Composite gained
only 0.05% last week. Combine this with its heaviest weekly volume in over 8
months, occurring in a week without options expiration, and you have what looks
like an index stalling out.
Previous Sector
Trends blog posts have described how growth stocks have been powering the
market higher, and how those stocks with the highest RS (Relative Strength)
rated 90 and above have been leading. This
leadership was pounded last week as investors and institutions sold the high RS
names en masse. The Sector Trends blog tracks 2,100 of the market’s most
liquid stocks and the table below shows their performance for the week by RS
tier. Note the perfectly inverse
performance correlation for the week - the stocks which have been leading performed
worst, while the stocks which have been lagging performed best:
|
RS Tier:
|
Performance Week Ending 10/25
|
# of Stocks
|
|
90 - 99
|
-1.6
|
233.0
|
|
80 - 89
|
-0.3
|
291.0
|
|
50 - 79
|
0.9
|
743.0
|
|
20 - 49
|
1.0
|
539.0
|
|
1 - 19
|
1.5
|
275.0
|
|
Total
|
0.6
|
2081.0
|
The inverse
correlation exists even when you back out the battered China names, although
the drawdown in the 90 - 99 tier decreases to -1.1%.
A closer
examination of the data suggests the market is rotating from growth back to
income. The table below examines the performance of those same 2100 liquid
names sorted by their yield as of 8/24/13. The table breaks out the performance
first by the trailing three week period, and compares it to the 5 week period
which preceded it. The table clearly shows
the reversal of fortunes between dividend and non-dividend stocks over the two
time periods.
|
Yield:
|
3 Week Perf.
9/30 - 10/25
|
5 Week Perf.
8/26 - 9/27
|
# of stocks
|
|
8%+
|
4.3
|
1.8
|
108
|
|
5 - 8%
|
5.2
|
0.9
|
128
|
|
3 - 5%
|
4.5
|
0.9
|
280
|
|
1 - 3%
|
4.1
|
2.2
|
614
|
|
0.1 -
1%
|
3.7
|
4.9
|
153
|
|
0
|
1.3
|
5.5
|
798
|
|
Total:
|
3.1
|
3.4
|
2081
|
One bright spot for the week was the performance of
the transports, the Dow Jones Transportation Index
finished the week at an all time high and 5 of the 7 transportation related
industry groups finished the week in the top 50 of the trailing 1 week price
performance list. This performance suggests investors and institutions foresee
an improvement in the economy, and suggests any forthcoming market weakness
would imply a period of consolidation versus correction.
Last week 793 companies reported quarterly earnings
results including Apollo Group +30.8%, Federal-Mogul +26.3%, Agnico Eagle Mines
+23.6, Generac +22.5%, I T T Educational Svcs +21.5%, Corelogic +19%, Deckers
+17.6%, and Alexion Pharmaceuticals +15.4%. Next week 1,723 companies report
including Yelp, Ligand Pharmaceuticals, Questcor, Facebook, Sinclair Broadcast
Group, TASER, Fleetcor, Webmd, P G T Inc and numerous others.
A broader look at industry group performance shows technology
oriented groups performing poorly over the trailing 1, 2, 3 and 5 week time
periods. Commodity oriented groups are also performed poorly with only one energy group cracking the top 65 in
price performance last week, the Oil&Gas-Transprt/Pipelne group, an
industry group known for its generous dividend yields. Defensively oriented
groups finished the week in a neutral distribution across the 197 groups, but
at times during the week they led the market higher; and the week finished with
3 utility groups ranked in the top 38 overall . 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)
|
3
|
4
|
4
|
6
|
7
|
5
|
|
# in the bottom 50 groups (out
of 197)
|
12
|
10
|
9
|
8
|
7
|
9
|
|
28 Technology Oriented Groups:
|
1
wk
|
2
wk
|
3
wk
|
5
wk
|
13
wk
|
26
wk
|
|
# in the top 50 groups (out of
197)
|
3
|
4
|
4
|
6
|
9
|
11
|
|
# in the bottom 50 groups (out
of 197)
|
13
|
16
|
16
|
12
|
6
|
5
|
|
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
|
7
|
13
|
8
|
2
|
3
|
|
# in the bottom 50 groups (out
of 197)
|
7
|
7
|
9
|
8
|
13
|
12
|
Summary: The
Nasdaq has gained over 40% in slightly less than a year, and closed Friday at a
13 year high. Unfortunately, the stalling behavior, rotation towards income, evisceration
of high relative strength stocks, and nascent signs of defensive rotation all suggest
the run is close to its end. Over the past 3-4 months this blog has been
correctly dismissive of distribution days and the resultant "market in
correction" calls. But the environment changed dramatically last week, and
if the market starts picking up distribution days - and it probably will - do
not ignore them. Whether the market corrects or just consolidates is unknown; but
caution is strongly advised - especially for those with investments in high
relative strength growth stocks.
Industry Group
Performance:
China: The Sector Trends blog has pointed out the strength in China stocks
over the past month, and did so again in last week end's analysis. Chinese
names took a 1-2 punch last week when first on Wednesday China's central Bank
let interest rates increase to their highest level in 3 months. This was
followed by a report on NQ Mobile by short seller Carson Block on Thursday accusing
NQ of fraud.
NQ fell 57% on
the week, and selling in other China based names was heavy; with the average liquid
Chinese ADR (not including
NQ) down 5.2% for the week. The vast majority of the damage was contained to
ADRs that started the week in the 90 -
99 RS tier, these 17 names on average fell 7.7%. The 9 liquid China based ADRs
that started the week with RS < 90 averaged a decline of only 0.7% for the
week, with CSIQ, EDU, NTES and WX still posting weekly gains.
Regardless of
the veracity of Carson Block's fraud claims, the odds of further short term appreciation
from this group appear slim.
Food: The September 1 blog post pointed out the weakness in food related
groups due to concerns over US crop production. The industry group ranks remain
poor, with the highest ranked group coming in at #138. However, as the table
below demonstrates, the short term price performance of these defensively
oriented groups has improved dramatically:
|
Price Performance
|
|
MarketSmith
|
||
|
Industry Group
|
3 Week Gain
|
3 Week Rank
|
|
Ind. Group Rank
|
|
Food-Dairy Products
|
11.8%
|
3
|
|
149
|
|
Food-Misc Preparation
|
6.4%
|
32
|
|
147
|
|
Food-Grain & Related
|
6.7%
|
25
|
|
138
|
|
Food-Confectionery
|
6.2%
|
35
|
|
177
|
|
Food-Packaged
|
4.8%
|
69
|
|
164
|
|
Beverages-Non-Alcoholic
|
5.9%
|
42
|
|
190
|
|
Food-Meat Products
|
1.5%
|
155
|
|
170
|
Boulder Brands (BDBD) remains in the volatility squeeze
highlighted in the 8/4 and 9/15 blog posts. It is not showing signs of strong
accumulation, but that could change over the coming weeks. Strengths: RS
85, EPS 94, analyst EPS forecasts +55% FY '13 and +48% FY '14, and the
Bollinger Bands remain in a volatility
squeeze. Weaknesses: Institutional sponsorship has been stagnant, ROE
only 4%. Price alert ~ 16.77.
Charts: The following charts come from a MarketSmith screen with the following
parameters:
CBOE Holdings
(CBOE) is seeing significant accumulation with a "B+" A/D rating, 50
day up/down volume ratio of 1.3, and a 25 day ratio of 1.5. CBOE yields 1.4%,
and has a 51.12 pivot out of a cup shaped base.
Eaton Vance (EV)
is seeing heavy accumulation. A/D rating of "B+", 50 day up/down
volume ratio 1.4, 25 day ratio 1.5, yield 2.1%. Analysts forecast FY '13 EPS
+12%, FY '14 +19%.
Flowers Foods
(FLO) is seeing accumulation: A/D rating "A-", 50 day up/down volume
ratio 1.5, 25 day ratio 1.7, yield 1.8%. Analysts forecast FY '13 EPS +41%, FY
'14 +13%.
Lazard (LAZ)
could have potential. A/D rating "A", 50 day up/down volume ratio 1.2,
25 day ratio 1.0, yield 2.5%. Analysts forecast FY '13 EPS +23%, FY '14 +34%.
LPL Financial (LPLA) is
another investment banker showing potential. A/D rating "A-", 50 day
up/down volume ratio 2.2, 25 day ratio 3.3, yield 1.9%. Analysts forecast FY
'13 EPS +14%, FY '14 +11%. Note the increase in institutional sponsorship in
the weekly chart below.
RLJ Lodging
Trust is a hotel REIT that's breaking out. A/D rating "A-", 50 day
up/down volume ratio 1.5, 25 day ratio 2.3, yield 3.2%. Analysts forecast FY
'13 EPS +19%, FY '14 +14%. Note the increase in institutional sponsorship in
the weekly chart below.
