Industry Analysisby Danny on July 27th, 2008 at 10:11:04 pm |
I wanted to see what the hell the 239 industry groups were up to, so I figured I’d better get it sorted.
I ranked the industry groups by a relative strength scan that weights recent performance versus past performance. I like this idea because it eliminates sideways, or dead-cat bouncing groups. Technically, if a group has been flat for a year, it could be within 90% of its all time high, despite negative YTD appreciation. I don’t want that.
So these are the top 25 percentile of industry groups, per this scan.
This reveals trends nicely. Oils, Ags, and Minerals have been the big performers in the last year, but are 25% off their highs. Diagnostic Substances haven’t performed well YTD, but in the last month or so have zoomed higher. The scan has done its job.
Not surprisingly, many of the top spots went to medical/healthcare/bio/drugs contingent, which continues to outperform and should be bought on dips.
The whole group looks generally overbought and ripe for a pullback just like Oily groups look oversold and due for a bounce. I would lighten up on the oils on a bounce and get long bios on a pullback, should something like that occur.
About 15% of the Bios I’m looking at came in as “overbought,” based on a stochastic range scan. This is extremely high because less than 2% of stocks show up on this scan if it is ran against the whole market, or 114 out of 7127 stocks.
Here are the currently overbought bios. You should probably check why they are overbought, I’ve done no DD on any of them.
Just like the “wildcatter” days of yore, when all my outperformance scans were dominated with [[mxc]]s and [[cog]]s and crap, now they are being inundated by the medical/healthcare/bio/drugs cabal.
Within the top 25, I looked at the charts of the industry groups and picked the best looking ones, while adding the stocks within that industry group to another watchlist. I chose to focus on the aforementioned contingent.
I eliminated all stocks under 100m mkt cap, and with less than a 70 Relative Outperformance ranking. Then I removed buyouts and ridiculously low liquidity stocks.
HERE IS THE COMPLETE LIST for the results of the scan. I added in a few details, so yo should bookmark that link. The prices and volumes and stuff will update by themselves. There are a LOT of great looking names. And some shitty ones.
Many are butting heads with overhead channels that could either breakout or fail, still others are breaking out to relative all-time highs, while others are just kicking ass in every imaginable way. Here are my favorites from the list, at a cursory glance, in order of relative outperformance score:
[[sqnm]], [[miti]], [[avan]], [[acor]], [[mnta]], [[mygn]], [[lsr]], [[auxl]], [[crdc]], [[abmd]], [[vvus]], [[idra]], [[ilmn]], [[iclr]], [[mmsi]], [[gtxi]], [[nabi]], [[beat]], [[celg]], [[ldr]], [[osir]], [[tech]], [[forr]], [[matk]], [[sgen]], [[gild]], [[crl]], [[bax]], [[pki]], [[sono]], [[smmx]], [[cbm]], [[mipi]], [[xnpt]], [[thor]], [[xray]], [[qgen]] [[bvx]], [[cvtx]].
Happy hunting.
Excellent work, Danny!
I was thinking over the weekend about the healthcare space. The best way to play the group, given the sporadic blow-ups in any given name, is to probably build a basket of 8-10 stocks with small positions in each — buying on weakness, as you have noted. That way, everyone sleeps better at tht end of the day, and one can get exposure to the sector without make-or-break concentrated bets that can shoot down a portfolio in a flash.
-Phil
July 27th, 2008 at 11:17:34 pmOr, you could just buy the biotech ETFs. IBB comes to mind, but I think there is another.
July 27th, 2008 at 11:27:36 pmWood, that’s a good point. The only problem with the IBB, BBH or XBI is theyre all pretty overbought right now (tough to measure risk reward for an entry-point that makes sense).
At this stage in the game (for those who dont own the ETF’s like me), it’s probably better to build a basket featuring tailor-picked names that are just starting to break out (PKI or CRL come to mind) or have come in for a dip (MDT is an example) as the opportunities present themselves.
That’s just my take.
-Phil
July 27th, 2008 at 11:45:25 pmPhil, I was thinking the same thing. My fear though is that the entire sector will pull back, including those that are not yet overbought.
I’m still looking at some of the names you gave in a previous post.
I’d be leary of buying any individual names with an RSI2 of above 90, until the sector pulls back a bit.
July 27th, 2008 at 11:53:10 pmI might be going out on a limb with my little theory — but, then again, in these wacky mkts, one needs to always be one step ahead of the game — but we MIGHT (big M) see temporary strength in resource stocks for a relief bounce in the coming days. ACI reported earnings and ignited 10% on Friday. CHK reports on Thursday and, as Ragin notes, are surely going to blow away estimates. A number of these resource stocks are going to be reporting blow-out numbers. During this relief bounce in resource stocks, biotechs might take a break and consolidate or pullback a bit.
Then, biotech resumes. Just something to chew on.
-Phil
PS: The USO has slowed down on its 100-day moving average. No guarantees that this holds, but this was the average from which USO vaulted from on February 7, 2008. USO has managed to test and hold the 100-day for little more than a year now. Also, given that no one talks about the 100-day may make it an invisible line in the sand of sorts.
If oil bounces, gold may follow. GG reports earnings on Thurs., July 31. It’s brutally oversold. It’s sitting at trendline support and might offer a good risk-reward here as well given that they’re the lowest cost producer of gold among the majors — and the Street expects them to deliver good news.
July 28th, 2008 at 12:25:49 amShed, why is that “your fear?” They are overbought, and I highlight it. You are reiterating the point of the article.
Find a stock out of the ones I provided and buy it on dips. It’s thats easy. CRL, LDR, there are a bunch of good ones that have been great performers for years
July 28th, 2008 at 1:04:37 amPhil - As I said, I do expect oil to bounce. But you bring up great points, thanks for the comments.
July 28th, 2008 at 1:07:49 amWhere’s VRX on that chart?
BBI is getting distorted thanks to the DNA merger announcement.
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July 28th, 2008 at 1:11:18 amSlow down Danny…
“My fear” is in reference to Phil’s point about buying bio stocks that are not yet overbought. My fear is that those too will be weak during a sector pull back.
So to be clear, the implication I made was that I might consider waiting for a pullback in the sector, before buying even the stocks that are not yet overbought.
July 28th, 2008 at 1:13:09 amDude, you’re supposed to come back from vacation all irie. What’s up with the harshin’?
July 28th, 2008 at 1:14:38 amTouchy about the new avatar, I’m surmisin’.
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July 28th, 2008 at 1:18:01 amlol’in’ @ Jake
July 28th, 2008 at 1:20:43 amJake - I know DNA distorted things. That’s why I included the measure of overbought stocks.
I like my new avatar. After all, I’m not in college no mo.
Shed - Sorry to come off all harsh. It wasn’t intended. You said “my fear” which I took as you not reading what I wrote correctly. My b. Or is it it your b?
July 28th, 2008 at 2:07:16 amplay it day by day
For now — in a trendless market, every day is a new day and chance to trade intraday on flavor of the day.
Oil bounce, then banks, then bio, then they tank. Can’t imagine looking out more than 3 days in this market. By then your profits are losses.
July 28th, 2008 at 9:11:19 amDanny:
Great work. Could you post the Telechart PDFs you created for the 2nd and 3rd columns in the first list?
Thanks.
July 28th, 2008 at 10:57:44 amsorry Zen, I did not intend to ignore your comment.
performance YTD: 100*(C-C169)/C169
I update this scan each day. Tomorrow I will use C170.
Relative Outperformance: I perfer to keep this one private, b ut I gave away how it is constructed.
you can weight the price however you want, literally the same as a GPA.
math test 90/100 X .25% weight = .225
science test 80/100 X .25 = .2
english test 100/100 X .25 = .25
History test 90/100 X .25 = .225
Sum = .90. Then, you market rank that.
So, maybe a better example is Q1 = test 1, Q2 = test 2, and so on.
(((C / C65)) * .40) ((C/C130)) * .25 ((C/C195))*.2) ((C / C260)) *.15)) * 100
you can also try weighting it like this:
(((C / C65)) * .35) ((C65/C130)) * .25 ((C130/C195))*.25) ((C195 / C260)) *.15)) * 100
you can also change the weighting, depending on what time frame you want to emphasize.
I hope this helps and feel free to ask my any more questions/
July 28th, 2008 at 4:59:10 pmDanny:
It was the C170 (YTD) that I couldn’t find built-in. Thank you for the complete disclosure.
Very insightful. Very helpful. As John McCain sez: “Math is not my strong point.”
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