Looking at January's Top Performers

Now that January is finally over, let's take a look at the top-performing sectors during the period. Given the market's erratic performance lately, the process could reveal where the smart money is headed this winter. It also might give us the courage to take a chunk of nonperforming capital and put it to work in more productive places.

There are many ways to examine relative strength in different market groups. I like to stack them according to percentage distance above or below their 200-day moving averages. This method lets me uncover blossoming sectors that are waking up after long slumbers, as well as retaining the core leadership that trades well year after year.

It isn't a surprise that no technology subsectors made the list of top performers, even though these volatile groups generate the most excitement among traders, investors and even financial writers. It seems we still haven't broken our strange addiction to chips, hard drives and routers, even through they're not paying off so handsomely these days.

The major airlines sector leads the January performance list. This leadership makes sense given the plunge in crude oil prices, as well as intensifying merger-and-acquisition activity. Both of these factors should continue to support airline stocks in the months ahead, so look for group strength to keep on rising.

Air France-KLM (AKH - commentary - Cramer's Take) shows the most constructive price pattern in the airline sector. The stock is best suited to longer-term players because its primary European listing can trigger multiple gaps on the NYSE American depositary receipt (ADR). In any case, watch for this one to continue its upward trajectory and reach 50 in coming months.

Resorts and casinos have benefited from international growth stories in a handful of group players, and also by supportive gambling legislation in a number of statehouses. This potent combination has yielded a speculative group that continues to outperform more traditional corners of the market. That trend should continue through the first quarter.

It's best to avoid Wynn Resorts (WYNN - commentary - Cramer's Take) if you've got a weak stomach, because it can move through a wide trading range in a single session. But the stock is on a sharp upward trajectory that shows no signs of rolling over, despite broad market choppiness. This one is also in a perfect position for a split announcement.

The property management and development sector may not be sexy, but it's sure paying off for investors these days. This is a real estate investment trust (REIT) subsector that's been supercharged by intense buying interest in its three lead stocks, Plum Creek Timber (PCL - commentary - Cramer's Take), CB Richard Ellis Services (CBG - commentary - Cramer's Take) and Brookfield Properties (BPO - commentary - Cramer's Take).

Group component Corrections Corp. of America (CXW - commentary - Cramer's Take) owns private detention facilities. The stock rallied to an all-time high in October and dropped into a sideways pattern, with resistance just below 50. It has now rallied to that level for the third time and congested into a tight trading range. This sets the stage for a strong breakout that could unfold at any time.

Drug related products is a quirky subset of the broad pharmaceutical industry that includes nonprescription products, like diet pills and smoking-cessation aids, as well as traditional marketing and distribution operations. Its top performance in January makes perfect sense after all those well-intentioned New Year's resolutions.

NBTY (NTY - commentary - Cramer's Take) is the top sector component by a broad margin. The company makes a wide variety of the vitamins and nutritional aids found on local supermarket shelves. The stock gapped higher last week after a solid earnings report, but looks overextended here and ready to pull back. A decline to that trendline near 45 would offer a better entry.

The health care facilities sector is the second REIT to make the January leadership list. Many stocks in this relatively small group have been in solid uptrends for several years. These include a selection of elderly care facilities, so it looks like an interesting play on the graying of the baby boomer population.

Senior Housing Properties Trust (SNH - commentary - Cramer's Take) broke out in August after moving sideways for several years. The strong rally has continued in wavelike fashion, with shares reaching $26.12 two weeks ago and stalling. The stock is now testing the high and could be starting a leg up that reaches 30 by the end of the first quarter.

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At the time of publication, Farley held no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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