Sunday, January 23, 2011

Pray the Well - Prey the Weak (go-to list of shorts)

While the Dow managed new highs Friday, the rest of the market is on its heels; smaller-cap stocks in particular.

Not so enchanting a divergence if you are long of stocks.

I'm much smaller now (as planned in my previous post) and in particularly good spirits today. Not only did I succeed in getting out of the market's way, I've begun now planning for my South American bloodlust hunt-and-grunt adventure get-away.

I've got to get my action somewhere.

It is not for me to say the bull market in stocks is ending. I could proclaim a dramatic downside call here and look to highlight my worth once it (finally) hits, but why cement myself an idiot? This is the 3rd and historically best year of the Presidential Cycle, and if inflation will continue to rise for months and months to come, then stocks are likely undervalued still (fixed-income folks ought to watch equities here, now that they've stopped rising in straight-up action for the first time in months. If stocks are in the midst of a simple, healthy correction and ultimately burn to higher and higher highs, it becomes rather clear where inflation and subsequent fixed-income purchasing power are headed. Buying stocks in that environment would become defensive, odd as that may seem).

These remain unprecedented times. Gigantic fiscal experiments from the world's
largest economy and the ultimate outcomes are difficult, if not impossible to predict. Anyone calling for a bear market right now is either a gambler, an attention whore, a stupid fool, or all the above. Don't pay any attention to anyone right now who knows what is going to happen. Ignore subjective humans; some of whom have agendas they are not even aware of, since their own sub-conscious drivers commonly ignite their folly (something they fail to predict).

The markets are the best economist you've got. Imperfect predictors as they may be.

Having barked all that out (
Bah!), I'm not jumping up and down bullish anymore either. New-woot highs in the DJIA, coincident to a leadership pummel, is not the kind of divergence I want to soak my feet long in. Unless and until the larger, upward trends are broken, I'm not keen on shorting aggressively, or proclaiming squat. This then is the right time to take it easy some and allow the market picture to paint itself. The peanut gallery is for pathetic artists and followers only.

What I will contribute though, is an objective hit-list of what are now the weakest industry groups (and the not-too-pathetically-thin corresponding stocks). The screen is compiled from the lower-ranked relative-strength (RS) groups, which are performing weakest on the year so far (YTD).

This is not a list of the year's worst-performing groups so far, since shorting the more leadership groups which have already been hit is a risky affair (those beasts have sharp teeth). Rather, these are the worst groups YTD - which are lowest-ranked (the worst or the worst). They may not be as exciting, but they are the weaker animals and in that regard the safest (to attempt) to kill. The YTD performance of the major indices are shown at the bottom. All of these are well off their highs now, but the Russell-2000 in particular, has painted itself red.

As always, shop this list at your own risk. It is a working list only - a go-to kill-list for when I'm in a pinch. It's compiled for myself and you can make of it (or fade from it) what you want. You're (still) on your own. Follow Centrifugal to fade (my) trades in real time.

Worst Performing + Low-Ranked Industry Groups thus far in 2011 (from O'Neil's 197 ranked groups, as of Friday's close):

1. Bldg-Cement/Concrt/Ag -7.75% (CADC*, TXI*, EXP*, MLM, VMC, CX, CRH)
2. Leisure-Toys/Games/Hobby -7.5% (MCZ, OMEX, LF, RCRC*, JAKK*, HAS, MAT)
3. Consumer Svcs-Education -6.5% (LINC*, CAST*, COCO, UTI*, APEI*, LOPE*, BPI*, LRN*, CPLA*, STRA*, COCO, ESI, EDMC*, DV, EDU*, APOL)
4. Tobacco -5.83% (BTI, AOI, CIGX, UVV*, VGR*, LO, RAI, MO, PM)
5. Retail-Discount&Variety -5.58% (NDN, BIG, FDO, DLTR, DG)
6. Retail-Consumer Electronic -4.8% (RSH, BBY, GME, CONN*, HGG)
7. Steel-Producers -4.5% (AKS, CHOP*, CPSL, GSI*,
8. Retail/Whlsle-Auto Parts -4.38% (AZO, GPC, ORLY, AAP, CPRT, MNRO, PBY, LKQX)
9. Wholesale-Food -4.35% (UNFI*, GMCR, SYY)
10. Beverages-Alcoholic -4.18% (HOOK*, BORN, SAM*, CEDC, STZ, DEO, BUD, ABV)
11. Banks-Foreign -4.08% (IRE, GGAL*, BFR*, BMA*, NBG, BAP*, CIB, SAN*, KB*, HDB*, IBN, RBS, BSBR, NABZY*, BBD, ITUB, BNPQY*)
12. Retail-Super/Mini Mkts -3.38% (TA*, QKLS*, WINN, PTRY*, SVU, CASY*, RDK*, TFM**, SWY, WFMI, CBD, KR)
13. Bldg-AC & Heating Prds -3.08% (FIX*, AOS*, WSO*, LII*)
14. Food-Dairy Products -2.83% (ADY*, DF, WBD, DANOY*)
15. Food-Packaged -2.58% (SMBL*, BGS*, THS*, FLO*, RAH*, SJM,

Notable (dropping rapidly in Relative Strength):
- Auto/Truck-Tires & Misc -4.24% (TWI, CTB, GT)
- Retail-Mail Order Direct -3.14% (WTV, HSNI, LINTA)
- Retail-Leisure Prod -2.13% (BGP, HIBB*, BKS, POOL*, CAB*, DKS)
- Transportation-Truck -2.02% (YRCW, QLTI*, ABFS*, HTLD*, KNX, WERN, ODFL*, CNW, SWFT, LSTR*, JBHT)

-Russell 2000: -1.3%
-NASDAQ Composite: +1.4%
-NYSE Composite: +1.8%
-S&P 500: +2.0%
-NASDAQ-100 (NDX): +2.3%
-Dow Jones Industrial: +2.5%

* Thin
** IPO

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