So Far, So Rotation in 2012

Submitted by Mark Hanna

Courtesy of MarketMontage. View original post here.

Coming into the year much of the late year leadership groups – almost entirely dominated by dividend stocks, especially of the utility & MLP kind – were extremely overbought.  I opined for the market to continue higher, we needed to see some sort of rotation into more ‘growthy names’.  The action in the general index has been misleading as almost of all of 2012′s gains came in the first 5 minutes of the year – a level from which we’ve barely budged since.  On the positive side, the senior indexes are marking time over some key resistance areas; on the negative side we are expending a lot of energy under the surface to get nowhere fast.   At this point a lot of secondary indicators have reached overbought or near overbought status as well.  But due to said rotation, the indexes have been able to hold flat as new groups take over from old.

While the individual names don’t matter as much, one always wants to see what sectors the action are in.  Since those PMI reports roughly a week ago there has been an embracing of many previously broken down stocks of a cyclical nature.  One area that represents this are agricultural machinery stocks which have had a great 2012. If this can continue through the quarter this would definitely be a positive, although many have come a long way in a very short period of time.  Energy stocks have been another area of strength although it is not broad based action – certain stocks seem to be getting a lot of attention and others forgotten.  Semiconductors (highly cyclical) have been embraced, as have regional banks (part of that “housing boom”) .  The last major group in favor thus far in 2012 is biotechnology – this was actually a decently strong group in latter 2011 (especially the related big cap pharma that threw off dividends)

On the flip side the area with the most relative strength in latter 2011, has been among the worst in 2o12 – wrecking havoc on those looking for a continuation of trend.   2012 has thus far been a dud.

It has been a bit of a head scratcher start of the year as the attitude towards growth names has literally changed overnight as if the environment of Jan 1st somehow was so materially different than Dec 31st.

Below I’ve copied the best performers of the year to date – those who have performed at least 10% gain; not to point out the individual names, but the sectors where the action has been concentrated this year.  Aside from groups I’ve noted above, we can see some of the sub sectors I’ve written about this past week such as “broken down tech” – one such niche are the data storage devices.  Again, one of the worst performers of latter 2011.  It definitely continues to be a “the meek shall lead” market thus far.

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog