Sector Rotation

Dan Stewart CFA®
President/Chief Investment Officer
NorAm Asset Management

The equity markets experienced a rally yesterday, but with the exception of the NASDAQ, the other 2 Big indices were muted.  Like the NASDAQ, both the mid and small cap indices also had a solid day.

This makes perfect sense as those 3 indices experienced the most severe selling during the 3 day rout, so it was constructive day.  That said, the internals weren’t particularly strong.  It didn’t exactly woo me to jump back in with both feet.

Gold, bonds, the Yen, and stocks were all higher.  That is unusual occurrence and not sustainable.  Of the 4, stocks were the weakest.

Commodities have been heating up with gold closing at $1,309 after bouncing off of support at $1,288 days ago.  Oil is the strongest commodity and was up over $2/barrel closing at $102.52.

Why is this important?  Because there has been a huge sector rotation.  Of the 197 sub-groups, 24 have rotated 11 spots or more (higher) in just a few days.  That is a big displacement as usually the sub-sectors rotate more gradually.

So how do we take advantage of sector rotation, and specifically oil strengthening?  As I wrote a few days ago in the newsletters, we took a position in Continental Resource (CLR).  I told you days ago I would keep you informed and provide you with the evolution of this trade.

 

 

 

 

 

First, a little fundamental background on Continental before I explain the technicals.  CLR is an independent oil and natural gas exploration and production company with operations in the Rocky Mountain, Mid-Continent and Gulf Coast.

The company is concentrated in crude-oil and operates in new and developing plays in horizontal drilling, fracturing, and recovery technology from unconventional formations.  It has strong revenue and earnings growth and is in the top 2% echelon of stocks.

Technically, CLR has strong institutional ownership.  It was up almost 5% yesterday closing at $129.19.  Our entry point 4 days ago was just above $124.  More importantly, CLR held its own during the 3 day rout essentially moving sideways.  That is a sign of real strength.

I attached a graph of CLR a few days ago, and have now updated it so you can visualize.  I wouldn’t necessarily chase it at this point unless you are an active, seasoned trader as it is extended from our entry point after yesterday’s big move higher.

Additionally, we took position in another energy company just before the close yesterday.  We will be discussing this position on The Wall Street Shuffle radio show on Saturday morning at 10:00 a.m. on 1190 AM.  You can also listen on iHeart radio.

I hope you enjoy the show.  If you have any investment questions you would like discussed on the air, or any specific investment questions in which you would like personal advice, e-mail me at Dan.Stewart@NorAmAsset.com and I will be happy to respond.

For a complimentary portfolio review, again e-mail me and we would be happy to review your positions.  We can evaluate your sector exposure and individual stock risk.

We have 2 economic reports out today and are listed below.  We have 3 companies reporting on the S&P 500 including Bed Bath and Beyond (BBBY) and Constellation Brands (STZ).

We have 12 companies reporting in the broader markets.  Some notables are below.

Dan Stewart CFA®
NorAm Asset Management

Economic Reports Today:

MBA Mortgage Applications
Wholesale Inventories

Some Notable Earnings Reports Today:

Constellation Brands (STZ – before market)
Progressive (PGR)
Bed Bath and Beyond (BBBY – after market)
PriceSmart (PSMT)
AngioDynamic s (ANGO – after market)

The information presented is for educational and entertainment purposes only.  Opinions and information expressed are based upon information considered reliable.  However, factors are constantly changing and should not be relied upon. You need to do and verify your own research.  

Moreover, no reader or listener should assume that any information or discussion presented serves as personalized investment advice from NorAm Asset Management, Inc. or from any other investment professional, and is not an offer of solicitation for the sale or purchase of any specific securities, investments, or investment strategies. You need to have your own, individual investment advice suitable for your personal situation.

 

Investments involve risk and unless otherwise stated are not guaranteed.