Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Sector Detector: Renewed worries about the same old topics

Wed, Sep 21, 10:44 PM ET, by Scott Martindale, Sabrient.com

Financials, Materials, Industrials, and Energy led the market to the downside on Wednesday after the Fed disappointed investors in their policy statement. In fact, investors were downright spooked, and the market fell about 2% in the last hour of trading alone. David Brown, founder and Chief Market Strategist here at Sabrient, told me that he can't recall ever hearing such a negative statement on the economy from the FOMC. More weakness is likely for stocks.

After optimism abounded last week as nations around the world vowed to work together to save Europe, this week the Fed brought us back to reality by saying the economy has “significant downside risks," including volatility in financial markets, high unemployment, depressed housing market, and cautious consumer spending. Plus, the IMF said that the global financial system is in its most vulnerable state since the 2008 financial crisis. The big "planning meeting" is taking place between finance ministers and central bank governors of the BRICS nations to address the European debt crisis. With the Greece 1-year bond yielding 134%, things could hardly be more urgent.

In an attempt to offer new stimulus to our economy, the FOMC announced its so-called "Operation Twist," whereby they sell $400 billion in shorter-term Treasuries while purchasing an offsetting amount of longer-term Treasuries by the end of June 2012. The move is intended to drive down interest rates on long-term government debt and trickle down to mortgages and other loans. But with the 10-year Treasury yielding only 1.90%, you have to wonder how much impact it can make.

Financials were hurt on Wednesday when Moody's cut its debt ratings on Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C), and the sector sold off hard in the final hour of trading. Notably, Tech stocks held up the best on Wednesday (and for the week so far, along with Utilities), as positive quarterly reports, favorable news, and analyst upgrades for stocks like Oracle (ORCL), Adobe (ADBE), Autodesk (ADSK), and Hewlett-Packard (HPQ) kept them in the green.

I have noticed that gold mining stocks have badly lagged the price run-up in gold bullion. I read an analysis of why this might be happening, citing high energy prices to produce it, high taxation, the threat of nationalization or confiscation in certain countries, and perhaps most importantly, the belief among equity investors that the price of gold price has reached an artificially and unsustainably high level. But at these lofty levels it continues to sit as global financial troubles abound, resulting in cash flow multiples trading at historic lows. Moreover, the ratio of price to net asset value of gold stocks is about where base metal stocks trade, which is highly unusual. But lately it appears there has been an attempt to close the gap, with money flowing out of the gold bullion ETFs like SPDR Gold Trust (GLD) and flowing into the Gold Miners ETFs like Market Vectors Gold Miners ETF (GDX).

Looking at the SPY chart, the channel between support at 112 and resistance at 121 got an upside resolution in late August, but then it turned into a false breakout with the early-September swoon. After rallying nicely back to the top of the channel, weakness set in yet again, but it stayed inside the channel. Last week’s rally closed at 121.52, suggesting another try at a breakout, but progress this week has been difficult, and Wednesday finished poorly, producing an ugly red candle. Bollinger Bands have pinched back together and appear ready to break wider. With price hitting resistance at the 50-day simple moving average, and with RSI, MACD, and Slow Stochastic all pointing down, we'll see if either the ascending triangle formation or the horizontal channel will be able to offer support.

The VIX (CBOE Market Volatility Index a.k.a. “fear gauge”) remains comfortably in the mid-30s and closed Wednesday at 37.32 up +13.5% on the day. This is quite a bit higher than the teens it fluctuated in just months ago and reflects investor uncertainty.

The TED spread (indicator of credit risk in the general economy, measuring the difference between the 3-month T-bill and 3-month LIBOR interest rates) continues to creep higher. It closed today at 35.05. Although not nearly so high as it was during the financial crisis, it nevertheless indicates elevated investor worry about bank liquidity and a preference for the safety of Treasuries bonds over corporate bonds.

Latest rankings: The table ranks each of the ten U.S. industrial sector iShares (ETFs) by Sabrient's proprietary Outlook Score, which employs a forward-looking, fundamentals-based, quantitative algorithm to create a bottom-up composite profile of the constituent stocks within the ETF. In addition, the table also shows Sabrient's proprietary Bull Score and Bear Score for each ETF.

High Bull score indicates that stocks within the ETF have tended recently toward relative outperformance during particularly strong market periods, while a high Bear score indicates that stocks within the ETF have tended to hold up relatively well during particularly weak market periods. Bull and Bear are backward-looking indicators of recent sentiment trend.

As a group, these three scores can be quite helpful for positioning a portfolio for a given set of anticipated market conditions.

Here are some observations about Sabrient's latest SectorCast scores.

1. Healthcare (IYH) remains on top with a consistently improving Outlook score of 87. Healthcare is a growth sector within an aging population, no matter what the overall economy does. It has managed to maintain analyst support (on a relative basis) while other sectors are getting net reductions in earnings projections across the board. In fact, all sectors except Utilities were decidedly negative on net revisors this week, but IYH was about flat (equal number of downgrades as upgrades).

2. Energy (IYE) returns to the second spot with an Outlook score of 71 as analysts have been relatively easy on the sector's earnings projections. It has reasonably good scores on most of the model's factors and one of the lowest (best) projected P/Es.

3. The relative strength in net revisors allowed Utilities (IDU) and Telecom (IYZ) to rise from the bottom three for first time in a long time, as they now score a 39 and 30, respectively. Consumer Services (IYC) and Industrial (IYJ) are now at the bottom. IYC is still held back by the worst return on sales (poor margins). Industrial got hit hard (along with Materials) by downward analyst earnings revisions.

4. Overall, the Outlook rankings are now decidedly conservative, as Industrial and Consumer Services dwell at the bottom while Healthcare holds the top spot.

5. Looking at the Bull scores, Financial (IYF) has been the leader on strong market days, scoring 58, followed by Industrial and Basic Materials. Utilities is the weakest with a 44.

6. As for the Bear scores, Utilities is the clear investor favorite "safe haven" on weak market days with a score of 67. Consumer Goods and Healthcare are distant seconds at 59. Financial has the lowest Bear score of 42, as it leads the market up on strong days and down on weak days.

Overall, Healthcare (IYH) displays the best combination of Outlook/Bull/Bear scores. Adding up the three scores gives it a total score of 193. Utilities (IDU) has the best combination of Bull/Bear with a total score of 111. Both of these are defensive signs.

Top ranked stocks in Healthcare and Energy include Jazz Pharmaceuticals (JAZZ), UnitedHealth Group (UNH), CVR Energy (CVI), and Chevron Corp. (CVX).

Low ranked stocks in Consumer Services and Industrial include Six Flags Entertainment (SIX), Sears Holdings (SHLD), Apogee Enterprises (APOG), and FLIR Systems (FLIR).

These scores represent the view that the Healthcare and Energy sectors may be relatively undervalued overall, while Consumer Services and Industrial sectors may be relatively overvalued, based on our 1-3 month forward look.

Disclosure: Author has no positions in stocks or ETFs mentioned.

About SectorCast: Rankings are based on Sabrient's SectorCast model, which builds a composite profile of each equity ETF based on bottom-up scoring of the constituent stocks. The Outlook Score employs a fundamentals-based multi-factor approach considering forward valuation, earnings growth prospects, Wall Street analysts' consensus revisions, accounting practices, and various return ratios. It has tested to be highly predictive for identifying the best (most undervalued) and worst (most overvalued) sectors, with a one-month forward look.

Bull Score and Bear Score are based on the price behavior of the underlying stocks on particularly strong and weak days during the prior 40 market days. They reflect investor sentiment toward the stocks (on a relative basis) as either aggressive plays or safe havens. So, a high Bull score indicates that stocks within the ETF have tended recently toward relative outperformance during particularly strong market periods, while a high Bear score indicates that stocks within the ETF have tended to hold up relatively well during particularly weak market periods.

Thus, ETFs with high Bull scores generally perform better when the market is hot, ETFs with high Bear scores generally perform better when the market is weak, and ETFs with high Outlook scores generally perform well over time in various market conditions.

Of course, each ETF has a unique set of constituent stocks, so the sectors represented will score differently depending upon which set of ETFs is used. For Sector Detector, I use ten iShares ETFs representing the major U.S. business sectors.

About Trading Strategies: There are various ways to trade these rankings. First, you might run a sector rotation strategy in which you buy long the top 2-4 ETFs from SectorCast-ETF, rebalancing either on a fixed schedule (e.g., monthly or quarterly) or when the rankings change significantly. Another alternative is to enhance a position in the SPDR Trust exchange-traded fund (SPY) depending upon your market bias. If you are bullish on the broad market, you can go long the SPY and enhance it with additional long positions in the top-ranked sector ETFs. Conversely, if you are bearish and short (or buy puts on) the SPY, you could also consider shorting the two lowest-ranked sector ETFs to enhance your short bias.


SDI Glossary: "CD" Definition
SDI Glossary: "CBOE" Definition
SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
SDI Glossary: "the Fed" Definition
SDI Glossary: "iShares" Definition
SDI Glossary: "MACD" Definition
SDI Glossary: "Sector" Definition
SDI Glossary: "VIX" Definition
SDI Glossary: "Volatility Index " Definition
This Article's Word Cloud:   Bear   Bull   Consumer   ETFs   Energy   Healthcare   Industrial   Outlook   Sabrient   Score   Services   Utilities   Wednesday   about   based   been   best   bottom   channel   days   down   during   economy   financial   gold   have   high   indicates   long   market   most   particularly   price   rankings   relative   relatively   score   scores   sector   sectors   stocks   strong   that   this   weak   week   which   while   with   within

| More

Sector Detector: Santa tries to "sleigh" the fiscal cliff
Thu, Dec 13, 8:16 AM ET, by Sabrient.com

. ...

Dark Horse Traders' Hedge: It's Been a Long Way Down For Apple
Wed, Dec 12, 6:35 PM ET, by Sabrient.com

. ...

What the Market Wants: Historical Tax Rates Provide Clarity
Mon, Dec 10, 8:15 PM ET, by Sabrient.com

. ...

Sabrient and Gradient Release Earnings Quality Rank (EQR), a New Quantitative Tool
Mon, Dec 10, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Tech shows best valuations as budget negotiation continues
Thu, Dec 6, 8:16 AM ET, by Sabrient.com

. ...

Scott Brown to Reveal Sabrient's Top Stocks on BNN
Wed, Dec 5, 2:15 PM ET, by Sabrient.com

. ...

What the Market Wants: Shame on Washington!
Mon, Dec 3, 6:46 PM ET, by Sabrient.com

. ...

ETF Periscope: Big Unemployment Numbers Across the Pond Remains the Big EU News
Mon, Dec 3, 1:46 PM ET, by Sabrient.com

. ...

Sector Detector: Rankings stay neutral while charts take a bullish turn
Thu, Nov 29, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: From Rush to Risk to Worry
Mon, Nov 26, 6:35 PM ET, by Sabrient.com

. ...

ETF Periscope: Britain Adds More Drama to the EU Circus
Mon, Nov 26, 10:56 AM ET, by Sabrient.com

. ...

What the Market Wants: A $64 Trillion Dilemma
Mon, Nov 19, 6:16 PM ET, by Sabrient.com

. ...

ETF Periscope: A Short Week On Wall Street Might Be a Good Week to Go Short
Mon, Nov 19, 5:35 PM ET, by Sabrient.com

. ...

Sector Detector: Jaded public needs a new hero
Wed, Nov 14, 8:16 AM ET, by Sabrient.com

. ...

Sabrient's Equity Valuation and Ranking Now Available on Bloomberg's App Portal
Tue, Nov 13, 11:45 AM ET, by Sabrient.com

. ...

What the Market Wants: The Devil You Know
Mon, Nov 12, 7:35 PM ET, by Sabrient.com

. ...

Dark Horse Traders' Hedge: Ride out the Storm with FCX, Option Review
Mon, Nov 12, 7:16 PM ET, by Sabrient.com

. ...

ETF Periscope: Bad Economic Numbers Mean a Good Time to Short the Eurozone
Mon, Nov 12, 3:35 PM ET, by Sabrient.com

. ...

Sector Detector: Focus returns to corporate earnings and Europe
Thu, Nov 8, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: After Tomorrow, Another Uncertainty Bites The Dust
Mon, Nov 5, 8:35 PM ET, by Sabrient.com

. ...

ETF Periscope: Elections the Flame, Wall Street the Moth
Mon, Nov 5, 1:36 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks attempt to launch a pre-election rally
Fri, Nov 2, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Frankenstorm Scares the Markets Closed
Wed, Oct 31, 6:36 PM ET, by Sabrient.com

. ...

What the Market Wants: Frankenstorm!
Mon, Oct 29, 7:15 PM ET, by Sabrient.com

. ...

ETF Periscope: With Companies Sitting On Massive Cash, Expect Blisters On Bottom Lines
Mon, Oct 29, 12:55 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks can't overcome weak quarterly reports
Thu, Oct 25, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Looking for Certainty Amidst Uncertainty
Mon, Oct 22, 7:25 PM ET, by Sabrient.com

. ...

ETF Periscope: Watch Out Below If Earnings Disappoint This Week
Mon, Oct 22, 2:36 PM ET, by Sabrient.com

. ...

Sector Detector: Stocks back in rally mode even without Tech leadership
Thu, Oct 18, 8:15 AM ET, by Sabrient.com

. ...

What the Market Wants: Uncertainty Reigns in the Market
Mon, Oct 15, 6:53 PM ET, by Sabrient.com

. ...

ETF Periscope: Eurozone and Earnings Duke It Out for This Week's Market Mover Title
Mon, Oct 15, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Earnings season launches under cloud of low expectations
Thu, Oct 11, 8:16 AM ET, by Sabrient.com

. ...

Jobs, Food Stamps, Conspiracies (Market Shadows' Fun With Numbers)
Tue, Oct 9, 4:56 PM ET, by Sabrient.com

. ...

Glimpse into the Future (Market Shadows' Fun With Numbers)
Tue, Oct 9, 4:45 PM ET, by Sabrient.com

. ...

What the Market Wants: Fasten Your Money Belts
Mon, Oct 8, 8:16 PM ET, by Sabrient.com

. ...

Ride Sally Ride (SLM) in Option Review, Add Cooper Tire (CTB)
Mon, Oct 8, 7:45 PM ET, by Sabrient.com

. ...

ETF Periscope: Ladies and Gentlemen, Start Your Earnings Season
Mon, Oct 8, 10:56 AM ET, by Sabrient.com

. ...

Sector Detector: Bulls keep their powder dry as presidential debates begin
Thu, Oct 4, 8:16 AM ET, by Sabrient.com

. ...

What the Market Wants: Fly to Safety (and not on American Airlines)
Mon, Oct 1, 7:16 PM ET, by Sabrient.com

. ...

Options Trade on GBX and MIPS
Mon, Oct 1, 12:36 PM ET, by Sabrient.com

. ...

ETF Periscope: Spain Remains a Pain For Wall Street
Mon, Oct 1, 11:15 AM ET, by Sabrient.com

. ...

5 Stocks Billionaires Are Crazy About
Fri, Sep 28, 12:35 PM ET, by Sabrient.com

. ...

Sector Detector: Investors Watch Romney's Hunt for Red October
Thu, Sep 27, 8:15 AM ET, by Sabrient.com

. ...

Broken Mirrors
Tue, Sep 25, 9:45 PM ET, by Sabrient.com

. ...

What the Market Wants: Caution is the Word of the Week
Mon, Sep 24, 7:25 PM ET, by Sabrient.com

. ...

David Brown Quoted in MarketWatch Article
Mon, Sep 24, 1:16 PM ET, by Sabrient.com

. ...

ETF Periscope: Is Wall Street Floating Along On An Equity Bubble?
Mon, Sep 24, 11:16 AM ET, by Sabrient.com

. ...

Sector Detector: Stocks finally break out from 3-month rising channel
Thu, Sep 20, 8:15 AM ET, by Sabrient.com

. ...

What the Market Wants: QE3 can Likely Produce 10% Short-term Gain
Mon, Sep 17, 5:55 PM ET, by Sabrient.com

. ...

ETF Periscope: Bernanke's Open End Bond Purchases May Snag at the Fiscal Cliff
Mon, Sep 17, 11:15 AM ET, by Sabrient.com

. ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Sector Detector: Renewed worries about the same old topics | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.