MorningWord 5/20/13: The rally off of the November 2012, now equaling about 24% in SPX terms has been called many things, but the one most common seems to be the “most hated rally ever”. Hedge funds have underperformed throughout meanwhile, as large, predominately long only capital pools the world over have piled into stocks/sectors that would not normally be the hallmarks of a raging bull market.
In the last month, the SPX is up about 7.5%, while some of the best performing sectors since Nov have under-performed as investors have moved into more cyclical sectors. Since April 19th the XLP (consumer staples) is up less than 3%, the XLU (utilities) is basically flat and the XLV (healthcare) is up ~3.5%. This compares to sectors that had previously caused some bears to fear the rally was tapering back in Feb/March as it appeared that financials and homebuilders had topped out after strong performance out of the gate in 2013. But these 4 very economically sensitive sectors have caught a massive bids, with the XHB (homebuilders) up ~15% since April 19th and the XLF (financials) up ~11%, XLK (technology) up ~10% and XLI (industrials).
In my normal charting a couple names in this rotation theme, caught my eye over the weekend, names that bears had previously pointed to as fallen leadership.
Poster Children of the Cyclical Rotation:
MSFT up 21% since April 19th at 5 yr highs:
GS up 14% since April 19th
TOL up 20% since April 19th:
CMI up ~10% since April 19th:
While these names have done a bit of the heavy lifting during this rotation, after early year strength, it will be important to track their performance to see if they can keep pace as they all appear to be at huge long term resistance.
The breadth of the rally has definitely increased over the past month, an important feather in the bull’s hat. But since most of the cyclical sectors lagged to start the year, there are many names approaching important areas of overhead supply at current prices. I’m watching for breakouts or breakdowns at these pivotal levels to get a sense for the sustainability of the broader market move.