May 31st, 2008

Rotation among IBD Industry Groups

The rotation among Industry Groups for leadership is gaining some momentum. On May 17, I wrote that I saw “an amazing and massive group rotation taking place since the previous Friday. While energy and commodity related Industry Groups still are among the best performing groups, nearly a quarter, or 32, of the lower ranked Groups moved up 50 places or more to positions within the top 100.”

Now I’ll say, “so what?” As of today, just two weeks later, the number of groups moving up 50 places or more since their rank 4 months ago has grown to 50, or more than half the groups. In fact, the list is becoming so long it almost won’t fit on a single screen. If you’re interested, click here.

It’s quite an impressive and somewhat overwhelming list to work with so I cut it another way. I sorted it according to sector and listed those sectors according to the number of stocks in those sector.

We’ve heard all the talking heads on CNBC talk about it and it appears that the institutions are putting their money where their mouth is.

  • The sector with the most stocks moving up 50 in ranking over the past 4 months have been tech-related. Ten of the 50 groups were in tech or internet, they comprise 332 stocks. The average ranking for those Industry Groups is 71.4, that’s an average 79.1 places higher than they were 4 months ago.
  • The other surprising sector that’s moved up in ranking are various retail Industry Groups; they’ve moved up an average 100.2 places to a current average ranking of 45.8. There are 125 stocks in these Groups.
  • Finally, construction related Industry groups (construction, material, equipment, etc.) moved up and average 72.9 positions to a current average ranking of 64.7. These Industry Groups include 115 stocks.

It appears that the pickings look great (once the market is convincingly on secure footing as discussed earlier) with more stocks to choose from.

You can’t turn on the TV, read a paper, a magazine or a blog without the same question being asked different ways: “Has the oil bubble burst?”. All the sectors that have worked so well as the financials and homebuilders were imploding not appear to be facing their test. Money is flowing out of these groups and is looking for a new home. Some is going into the above Industry Groups.

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