Homebuilding
The first and most obvious are the homebuilders. The chart below of the homebuilder ETF (XHB) against the market (SPY) shows XHB to be in a well-defined relative uptrend. With the housing market bottoming and the Fed's QE3 buying MBS paper to support the housing market, this is an industry that has a definite tailwind at its back.
Technology as emerging leadership?
One somewhat surprising sector that may be staging a turnaround is the Technology sector. The chart below showing the relative performance of this sector against the market is showing the signs of a potential relative return bottom.
The relative performance of the equal weighted NASDAQ 100 (QQEW) as a proxy for the Technology sector tells the story of a relative turnaround in a much clearer fashion. In November, QQEW rallied through a relative downtrend that began in February and it has staged a robust relative performance rally.
As further confirmation, analysis from Bespoke shows that breadth is recovering nicely for the sector.
An agribusiness turnaround
Another surprising industry that is turning around is Agribusiness. The relative return pattern of the Agribusiness ETF (MOO) is similar to the one seen in QQEW. MOO rallied out of a relative downtrend in September and has been in a relative uptrend ever since.
A word of warning is warranted here. MOO is relatively thinly traded and doesn't have a lot of components. As well, the agricultural commodity complex is not showing a similar level of leadership relative to the broadly diversified commodity indices - which makes this trend slightly suspect.
Will Europe break out?
The last group of stocks that I would pay attention to is Europe. You would have to be on Mars in the last few years to be unaware of the rolling series of crisis in the eurozone. Greece, Ireland, Portugal, Spain, Italy - the list goes on and on. While the world waits for Eurogeddon, chartists are now watching the European stock averages such as the Euro STOXX 50, i.e. eurozone stocks, rallying strongly to test a major resistance level.
On a relative basis, the Euro STOXX 50 (FEZ) rallied through a relative downtrend against the MSCI All-Country World Index (ACWI) in August and it has now staged an upside relative breakout. Count European stocks as another leadership group.
In summary, here are some areas of the market to watch as sources of returns:
- Homebuilding
- Technology
- Agribusiness
- European stocks
Disclosure: I am personally long FEZ and XHB.
Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.
2 comments:
The interesting thing about Europe is that US money managers as a whole remain sigificantly underweight the region. Valuations still look reasonable and a lot of negativity is already in European numbers. Remains the most underowned region globally. Maybe soon it will rise to a buying level...?
TOL earnings fell 70% less than what analysts predicted causing a one day blip for home builders.
According to EquityClock, Tech is a good seasonal pick starting in October and ending in Jan.
. For example, the U.S. high tech sector has a period of seasonal strength from the end of September to a time between the end of December and the end January. On average, the sector peaks between start of the annual Las Vegas consumer electronics show in the second week in January and start of fourth quarter earnings reports near the end of January. Optimal time to own high tech securities for a seasonal trade based on month end statistical data over a 10 year period frequently flips back and forth from the end of December to the end of January.
Small caps seasonally do well in January. I know it should only accompany technical and fundamental analysis.
Banks took up the slack today with layoffs; too bad they don't have a dividend to carry into 2012 to entice shareholders. :)
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