Last week the Sector Trends blog summarized the market
condition as follows: “The indexes are basically static as they
work off an overbought condition, picking up the occasional distribution day as
this happens. Don't be fooled by this action, this market is very strong with serious money
being made in the right sectors and names.”
As if to demonstrate the accuracy of that statement, on
Monday the markets started the week with the Nasdaq
falling 1.5% in volume 27% above average. Suddenly the uptrend was under
pressure and the world was ending! Until Tuesday, when buyers returned en masse…
from Monday’s close through the end of the week the Nasdaq gained a solid 2% in
volume ~ 14% above average, and closed Thursday at a new 13 year high.
Some may wonder if distribution days matter any
longer. The blog’s view is that what matters is how the market reacts to distribution days. There's a well
documented correlation between clustered distribution days and subsequent
market weakness, so most of the time
the market reacts by moving lower.
So what does it mean when that doesn’t happen? What does it
mean when the model is suddenly better at picking buy points than sell points? Is
the model broken? The blog’s view is that it’s not broken but just ineffective because this market is so strong.
It will doubtless work again in the future when this bull ends (whenever that
is), but in the mean time see this market for what it is (very strong) and don’t
let confirmation bias trick you into dumping your stocks every time there’s a
1.5% sell off.
Last week’s economic data continued to reflect an improving
economy. Tuesday's release of December's retail sales figures which were
surprisingly solid showing a gain of 0.2% vs. a consensus expectation of 0.0%;
less autos the gain was 0.7% vs. an expected gain of 0.4%. December business
inventories came in higher than expected gaining 0.4% M/M vs. a 0.3% consensus,
but remained in line with sales. Wednesday’s Empire State manufacturing survey
came in at a very strong 12.5 vs. a consensus of 3.3 indicating strong growth
in a region of the country that has been lagging. Thursday’s consumer price
index remained tame, and jobless claims were inline while the housing market
index suggested builder confidence remains high. Friday’s housing starts
exceeded consensus while permits slipped 3%, but the slip in permits seems to
have been the result of poor weather.
Last week the blog noted that technology oriented groups
were outperforming defensively oriented groups, and the uptick in the
performance of defensive groups was related to a rush of buyers moving into the
healthcare sector. This past week technology oriented groups dominated with 16 tech
related groups ranking in the top 50 of the trailing 1 week price performance
list, while only 1 group finished in the bottom 50 (Computer Software-Gaming,
-2.2%). This strong performance from technology oriented groups suggests
continued gains and is a positive for the health of the market.
Earnings season is upon us and will be a driver of results
going forward. Last week 88 companies
reported gaining an average of 1.6% for the week. Of those 88 companies 45 were
from the banking sector and those gained 0.3% for the week. Using only these 45
reporting companies to calculate performance Banks-Super Regional gained
+3.1% (5 reports), followed by Banks-Northeast +0.9% (10 reports), Banks-Money
Center +0.4% (7 reports), Banks-Midwest +0.4% (8 reports), Banks-West/Southwest
-0.9% (3 reports), and Banks-Southeast -1.1% (12 reports).
Next week 299
companies report, 97 of these from the banking sector. High relative strength
names reporting include Netflix, Forest Labs, Delta, American Airlines,
Southwest Airlines, and Invensense. Large cap names reporting include
Microsoft, IBM, Verizon, McDonalds, Ebay, Starbucks, Halliburton, and Freeport McMoRan.
Summary: This is
a very strong market with
buyers tripping over themselves to get positions in the technology and
healthcare sectors. Positive economic data combined with weakness in defensive
issues points to a continuation of the trend.
**********************
Industry Group Performance:
Medical: Last week’s analysis described the explosion in the Medical sector, and
that continued this past week as the sector ranked #2 picking up 3.6%, with 11
of the 14 medical related industry groups ranking in the top 50 of the trailing
2 and 3 week price performance lists. Three of the sector's stocks highlighted
by the blog last Sunday had stellar weeks with STML +44.3%, KPTI +25.2%, and
CADX +14%.
Xenoport (XNPT) was
mentioned last week and still appears to have potential. XNPT is under heavy
accumulation, with an "A+" A/D rank, 50 day up/down volume of 1.9,
and 25 day up/down of 3.8. XNPT also enjoys an "A" sponsorship rank.
XNPT has faded back to its 6.50 pivot in low volume.
Supernus
Pharmaceuticals (SUPN) is seeing strong accumulation and has just recently
emerged out of a 7 month channel. A/D is “B+”, 50 day up/down volume 1.8, 25
day 3.0, and SUPN enjoys an “A” sponsorship rank.
Software: It was another strong week for the software sector with 7 of 10
software related industry groups ranking in the top 40 of the trailing 1 week
price performance list, and numerous groups making significant moves higher in
MarketSmith’s industry group rankings. There are now 6 software related groups
with MarketSmith industry group rankings in the top 50, and it appears this
will be increasing. The only group that seems out of favor is the Computer Sftwr-Gaming
group, which lost -2.2% last week and fell -38 in MarketSmith’s rankings to
#107.
Tableau Software (DATA) has set up in a cup & handle
pattern and broke out Thursday gaining 3.3%, but in volume only 10% above
average. DATA is seeing some accumulation however, the A/D rank is
"A-", and the 25 day up/down volume ratio is at 1.25. Institutional
sponsorship increased from 232 to 260 funds over the last quarter, and
sponsorship quality is ranked as a "B". DATA's last quarter results
were stellar with EPS +300%, and sales +90%. DATA reports earnings 2/4/14.
Guidewire (GWRE) moved out of a double bottom base on Friday
gaining 2.3% in volume 29% above average, it's now 2% past the pivot. GWRE is
under heavy accumulation with a 25 day up/down volume ratio of 2.2, a 50 day
ratio of 1.4, and A/D rating of "B". Sponsorship has increased 297
> 331 > 372 > 421 over the past 4 quarters, and analysts forecast FY
'15 EPS +73%.
Advent Software (ADVS) seeing solid accumulation as it sets
up in a 4 weeks tight pattern. A/D "B+", 50 day up/down volume ratio
1.5, 25 day ratio 1.7. ROE 18%, RS 88, EPS 95.
The blog tweeted out the Medidata Solutions (MDSO) chart
last Sunday evening (1/12) and it gained a little over 2% for the week. MDSO
still looks good here as the chart looks ready to break higher out of a
Bollinger Band volatility squeeze. MDSO is under accumulation with a
"B+" A/D rank, 50 day up/down volume of 1.6, and sponsorship
increases of 238 > 256 > 310 > 315 over the last 4 quarters. MDSO is
scheduled to report earnings 2/6/14.
Realpage (RP) is under accumulation despite the fact its
pulled back 18% from its late October high. A/D rank is "B-", with a
50 day up/down volume ratio 1.0, but a 25 day ratio of 1.5 indicating shorter
term accumulation. EPS 97, ROE 15%, EPS growth rate 76%, FY '13 EPS estimates
+28%, FY '14 +27%. Check out the hammer on the weekly chart.
Internet: The January 5 blog post pointed out the improving strength of the Internet-Network
Solutions group writing the "group has been a
laggard group with a MarketSmith industry group rank of #141. However, that
could be changing as the group ranks #23 on the trailing 5 week price
performance list with a 5.3% gain." Since then the group has gained
an additional 4.9% to rank #18 on the trailing 2 week price performance list
and has jumped +33 in MarketSmith's industry group rankings from #141 to #108.
Both Gigamon (GIMO)
and Solarwinds (SWI) were highlighted in previous posts and continue to look favorable.
GIMO has a 3 weeks tight pattern on its weekly chart.
Computer: Computer related industry groups are gaining strength, especially the Computer-Data
Storage group which gained 9.9% last week (#2) and jumped +74 in
MarketSmith’s industry group rankings from #121 to #47. Three of the four
groups from the sector rank in the top 40 of the trailing 5 week price
performance list.
Electronics For
Imaging (EFII) tried to break out Wednesday before falling back below its
pivot. EFII is showing solid accumulation and recent EPS revisions have been
higher. Look for EFII to take another shot at it, perhaps after earnings which
are scheduled for Tuesday 1/28 AMC.
Mining: Two weeks ago the blog pointed out the improving performance of the
mining sector, and that continued this past week as it was again the top performing
sector with a 6.9% gain. For the week the Mining-Gold/Silver/Gems
industry group ranked #5 on the trailing 1 week price performance list with a
6.5% gain, and jumped +20 in MarketSmith’s industry group ranks from #188 to
#168. The Mining-Metal Ores group finished #7 on the 1 week price list gaining +3.9%,
and over the past 5 weeks has jumped +56 in MarketSmith’s industry group ranks
from #142 to #86.
**********************
All data and charts displayed here are the property
of MarketSmith,
and are published here with their permission.
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.
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