Time Slice Analysis

Lately I've been increasing effort in the study and analysis of what stocks do on my time frame.  My standard time horizon is between 5 to 10 days.  In placing effort into the actual behavior of what stocks are doing new insights can be gleamed about what is actually working such as: sector themes, patterns, are stocks near highs or beaten down, are they highly shorted etc...

Looking at the past ten days from a sector perspective, more defensive oriented stocks are beginning to populate the 52 Week High list.

Sectors on the Move

Looking at sizable moves over the past five days we can note that there are a cluster of Latin American Regional Banks to pay attention to, as well as some defensive plays in Silver and Utilities.

5 Day Moves

The list for 10 days is slightly larger, but two segments worth noting are Gold and Minerals and Mining are in play.

10 Day Moves

Keeping aware of what is moving on our time frame can assist in trade ideas by finding sectors that money is flowing into, the stocks that are in play, and give a clue as to general market sentiment based upon the action of aggressive or defensive stocks populating the list and not opinions. From my perspective I'll begin investigating the metal related stocks for set ups.

ANV

$PPP

RGLD

TAHO

The Rare Up There

They're at it again and they're worth paying attention to. The last time these stocks were heavily in the news I scoffed with derision but the egg was on my face for not seeing the possibility.  Instead I found myself staring incredulously as these stocks marched up 100s of percent on what seemed like air and marketing. But, after all, isn't that the drum beat that many stocks march to anyways? There doesn't need to be rhyme or reason for a stocks advanced, sometimes it just takes the belief and perception of others and sometimes it just takes a belief in a rising price.

Rare Earth and China News

“Rare Earth” is back in the news cycle and many of these stocks showed high volume interest today.

AVL

REE

TAS

The last time this situation arose stocks like MCP bolted and the music didn't stop for a year before the penultimate chair was pulled.  Lightning may strike twice with this group of stocks.

MCP July '10 to July '11

Baltic Dry Index Break Out

The shipping theme continues to emerge with the $BDI breaking from a range that formed trough to peak from February 2012 through April 2012. 

$BID

Individual shippers and perhaps the ones worth paying attention to further down the road also have been breaking out with 5 on my list having moves of 4% or greater today.  Many of these have been in deep neglect and at or near historical lows.  One of the inherent problems with these types of stocks is the lack of linearity as price has a tendency to jostle haphazardly.  Now that the $BDI has broken out and should the shipping theme play along, this type of price action should wane as persistent buyers step in.  This will also show up with more consistent momentum rankings on a 3 to 6 month time frame.

DRYS

EGLE

NM

PRGN

PRGN

Coal Case Files

I thought it was time to go down into the deep recesses of the sub-basement where the cold cases have been boxed and filed away collecting cob webs to reevaluate coal based upon new evidence. For some time now coal stocks have been populating my scans and are showing up fairly frequently as of late on the largest % daily gain list. In addition I've noted increased chatter on the Twits, so interest in these stocks is beginning to perk up as well.

A number of coal related stocks are at or near historical lows and many are down 90% or more from their peak price. Of course price could go lower, however the industry itself isn't going to disappear anytime soon, so at these depressed prices it's worth paying attention to future developments as any perceived change offers an excellent low risk entry with decent probability of a high reward trade on a longer term time frame should there be a cyclical recovery period.

One of the things I noted at the end of June was the float turn over for WLT. WLT traded 253M shares which is 4x the float. The prior two months it traded 147M and 136M respectively. In addition this happened to form a bottom on the monthly time frame from which price has rebounded since and also happened to be in the price zone of the 2009 bottom as well. The two questions I'm looking to have answered is if this is just a reflex bounce and the downtrend will continue, or will this be an area of support from which price initiates a new uptrend not dissimilar to the run after the 2009 bottom?

WLT Monthly

There are number of qualifications I'll be looking for as confirmation from a technical perspective. First and foremost, the 9.88 price zone must hold. Second a series of higher highs and higher lows. Third I'll be looking for momentum on a 3-Month time frame to kick in. Lastly for longer term potential, I'll be watching for a stage 1 base here where the 30-WK moving average catches price, flattens out, and turns up. From a fundamental factor I'll be looking for some form of catalyst that indicates a shift. Currently one noteworthy factor has been the amount of insider buying.  The assumption here is the these insiders have insight into the company and future prospects and by ponying up their own capital on the open market they are leaving a clue as to what they see on the horizon.

WLT Insider Buy

ACI has also had a recent insider buy as well. This is one way I'll be looking to weed out some of the laggards in this sector from potential leaders.

ACI Insider Buy

While not coal, FCX a copper/oil play is also showing some characteristics of a stock that might be bottoming.

FCX Monthly

In addition there has been some major insider buying to the tune of ~100M over the past few months. As with WLT, I'll be looking for similar characteristics as to a change of character and perception. Currently momentum has shifted positive on a three month time frame so it meets one of my criteria as of now. Going forward I'll be paying attention to a volume shift that indicates to me there is increasing demand suggesting that the undergrowth on the path of least resistance has been cut back.

FCX Insider Buy

Ships Ahoy!, Part 2

A while back I wrote a post relating to what I was seeing in the shipping industry, Ships Ahoy! Thus far my analysis has yet to come to fruition, but I still believe this is a sector that could very well begin to make a sharp move sometime in the near future. Over the past few days shippers have continued to pop up on the largest percent gainers list and a number of them are at or near their 52-Week high, even in a weakening tape. It's obvious from looking at the monthly charts of a few shippers that they're at or near historical lows. When an industry gets this depressed and neglected, should there be a change of perception about its future potential and it it catches a bid and momentum kicks in there will be opportunity for out sized gains.

DRYS Monthly

DSX Monthly

PRGN Monthly

In part what is beginning to catch my attention again is the number of shipping related stocks that are near their 52-highs.  Of the 47 stocks in the Worden Shipping Sub-Industry, 27 are within 15% of their 52-Week high. 

Along with new highs, I'll be looking for confirmation on the Baltic Dry Index which is very close to breaking a year and a half long range.

$BDI

In anticipation I've added the following list to Finviz and will continue to watch stocks that are up 100% over a 6-month to year period to weed out the strongest in this sector along with scanning for those that are showing higher volume on the monthly time frame.

Ships Ahoy!

Shipping has been on my radar for a couple of months now and is on the move and gaining momentum. I have a rudimentary frame work to place shipping into context: Shipping is macro/cyclical in nature, and shipping is very subject to the laws of supply and demand as well as a boom/bust business model. When economies turn sour shipping begins to suffer as vessels are docked due to lack of demand. In turn shipping rates will lower, profits lower, and growth stalls. When economies turn around, demand on shipping increases along with rates as there aren't enough vessels to haul. In turn shippers go through a boom cycle and will use profits to increase their fleet to meet up with demand and replace decommissioned vessels. It takes time to complete a build and often by the time the new ships are ready to be christened economies are on a downturn which means there are more ships docked as the cycle repeats.

With shipping currently in demand this may be a tell on the larger picture economic out look of macro players who are positioning themselves on the cheap and perceive the sector as a value play. I keep in mind the maxim I've heard that money in the market flows to where it's most wanted and over the past few months there has been an inflow into shipping. I noted shipping back in January when there was a cluster of them giving off a clue that I watch attentively, year high volume.

YHV Cluster in Shipping

As can be seen from my watch list and tracking dates, the returns after this signal have been 221%, 71%, 42%, 26%, and -66%. This week there were three more shippers that have been placed into my March year high volume watch list which signals to me that this is a sector related move and potential new leadership group moving forward.

DSX

EGLE

FREE

GASS

GSL

NEWL

PRGN

Retail/Textile Sector

With the market correcting I've been pruning off the stocks that have broken down and replacing my watch list with new set-ups. One theme that has begun to emerge from some of my scans has been in retail/textiles.

VFC is approaching new highs and GIII hit a new 52-Week high today.

VFC

GIII

GPS, KORS and CHS continue to base just under their highs.

GPS

KORS

CHS

MW has retraced its earnings break out and is hovering above a well watched 50MA. URBN and ANN have held their earnings break and are also hovering above their 50MA.

MW

URBN

ANN

JOSB and LULU have also held their earnings break out and continue to base.

JOSB

LULU

Sector Rotation From 10/03/11

Glancing at sector rotation since the October rally shows  Energy, Industrial,  Materials, Financials, and Consumer Discretionary outperforming the SP.  Tech is lagging.

Ranked by % Change 10/03/11

Harvesting the Fields and Rotating the Crops

The fields tilled by the traders of yore yield much wisdom.  One theme that keeps cropping up in the five books that I am currently reading and/or rereading is sectors.  From Livermore and Wyckoff to Weinstein and O'Neil, the understanding of sectors and cyclical cycles is repeated through their works, which is to be expected after all since in many regards they are branches from the same root limb.

In order to get a composite of sector rotation to better my understanding I set up some simple metrics and ran 5 scans through TeleChart and screen captured the results.  Using Morningstar Industry Groups as the universe I decided to scan the current list using a simple formula of C/C20 and C/C165 which gives the change over a shorter term 20 day cycle and medium term 165 day cycle and ranked these from high to low, taking the top 20.  I then modified the formula to scan for the same cycle 100, 200, 400, and 600 days ago (the last being approximately 1 month into the bull run since March 2009).

04/21/2009 Sector List (600 Days)

11/20/09 Sector List (400 Days)

01/26/2010 Sector List (200 Days)

03/30/2011 Sector List (100 Days)

Now that the composite of days 600, 400, 200, and 100 has been completed, questions can be framed around this information.  What did Resorts and Casinos jumping to the top of the 20 day list in April 2009 say about the prevalent attitude at the time vs. the market's attitude?  How are people getting to the resorts? Cruises?  Air planes?  Will these sectors come into play?  Looking at the image from November 2009 shows not only did Resorts and Casinos have duration and were clearly one of the leading sectors of the bull move, but also Airlines did enter the mix as well.  Additionally, in noticing the persistence of Resorts and Casinos over a period of time, are laggards beginning to reap the sector strength benefits as well?

08/19/2011 Sector List

Using this composite during the bull move as a reference to the current list, it can clearly be seen that this list is composed primarily of defensive stocks and there is a story being told here as well.  A defensive stock is described by Investopedia as:

The utility industry is an example of defensive stocks because during all phases of the business cycle, people need gas and electricity. Many active investors will invest in defensive stocks if a market downturn is expected. However, if the market is expected to prosper, active investors will often choose stocks with higher betas in an attempt to maximize return.

source: http://www.investopedia.com/terms/d/defensivestock.asp#axzz1Vmmetw7v

This list is unadulterated information and simply states that over a 20 day and 165 day period these sectors have shown greater price appreciation.  Regardless of what is being said on television, radio, the internet, semaphore, or smoke signals, the simple fact is this: the price flow is speaking quite clearly and it is chanting: "Defense! Defense! Defense!"


Using this context of defensive positioning and returning to the first image from April 2009, what can be seen during the initial stages of the bull market is a mixture of cyclical and higher beta sectors.  Using this as a model, paying attention to which sectors begin to rotate into this list may lead to clues about investor sentiment and money flow and when first adopters begin to get more aggressive as well as lead to clues about where the next leadership may be found.  Additionally, learning to ask questions about the data may lead to further insight and undiscovered sectors or germinate some ideas to harvest later.