Sector Momemtum During This Downturn: Semis and Networking Hit Hardest (TLT, PSI, IGN)

Nick Perry (Schaeffer's Investment Research) submits: While I usually use this column to recount the action of the week, I wanted to change up the pace today. As I am sure you are already aware, the broad-market indices sold off hard during the past couple of weeks. Given this action, I thought it was important to take a step back and look at how this pullback has played out at the sector level. The graph below shows the largest returns from May 5 through Friday afternoon:

If you have been actively following the market recently, the graph above probably doesn't surprise you. The selloff has been broad based, with few areas escaping the downward pressure. In fact, the only funds to show a gain during this time frame have been those related to bonds. Looking over the data below suggests that the funds that have held up have been the relative laggards prior to the drop. The bullets below show how the ETFs listed above have faired over the last six-months or so, prior to May 5. In other words, it shows how they had been performing before the recent drop.

Prior Six-Month Returns for This Week's Top Performing Sector Exchange Traded Funds:

* iShares Lehman 20+ Year Bond (TLT) -7.5%
* iShares Lehman 7-10 Year Bond (IEF) -3.8%
* iShares Lehman 1-3 Year Bond (SHY) -0.9%
* iShares Lehman Aggregate Bond Fund (AGG) -2.5%
* SPDR-Consumer Staples (XLP) +2.7%
* Internet HOLDRS (HHH) -20.4%
* US Oil Fund (USO) n/a
* Biotech HOLDRS (BBH) -17.0%
* iShares DJ U.S. Consumer Goods (IYK) +2.2%
* SPDR-Health Care (XLV) -1.7%
* PS Food & Beverage (PBJ) +7.0%
* iShares DJ U.S. Healthcare (IYH) -1.7%

Prior Six-Month Returns for This Week's Bottom Performing Sector Exchange Traded Funds:

* PS Hardware & Consumer Electronics (PHW) n/a
* PS Energy Exploration & Production (PXE) +17.0%
* iShares Silver Trust (SLV) n/a
* Oil Service HOLDRS (OIH) +33.2%
* Semiconductor HOLDRS (SMH) +4.8%
* PS Oil Services (PXJ) +29.4%
* PS Networking (PXQ) +11.0%
* PS Building & Construction (PKB) +12.6%
* iShares GS Networking (IGN) +11.7%
* iShares GS Semiconductor (IGW) +12.7%
* PS WilderHill Clean Energy (PBW) +43.5%
* PS Semiconductors (PSI) +25.9%

For the most part, the groups that have held up well over the last couple of weeks have been the ones that have struggled during the past six months. The US Oil Fund (USO), however, would be the notable exception to that statement if it had been around for six months.

Meanwhile, the funds that have been hardest this month are some of the best performing since November. The reason I felt this was important to point out is that it highlights one of the characteristics of the market - those with the most momentum tend to be hardest hit during pullbacks. They are among the more volatile movers, so this makes sense. That doesn't imply the buying strength is a bad strategy, it is just a point to keep in mind.