ETF Sector Detector: Healthcare on Top, Materials Bottom

We are seeing only slight movement to Sabrient’s Sector Detector ETF rankings, as Healthcare, InfoTech, and Consumer Staples continue to lead, while Materials sinks further into the cellar and remains the fundamentally most overvalued sector.

Latest rankings: This week, SectorCast-ETF indicates that Healthcare (XLV) remains solidly in front on a forward-looking basis, with the highest score of 93. It is again followed by Information Technology (IYW) at 67. (Although Consumer Staples has moved up 1 point to tie InfoTech, we’ll stick with InfoTech for this week.) Top-ranked stocks within these sectors include WellPoint (NYSE: WLP), Cigna (NYSE: CVH), STEC Inc. (Nasdaq: STEC), and Corning (NYSE: GLW).

At the bottom, we see that the score for Materials (XLB) has sunk even further, and it remains firmly in the 10th spot with a low score of 28. Industrials (XLI) is back in ninth at 42. Low-ranked stocks within these sectors include Alcoa (NYSE: AA), Weyerhaeuser (NYSE: WY), Monster Worldwide (NYSE: MWW), and PACCAR (Nasdaq: PCAR),

These scores represent the view that Healthcare and InfoTech stocks may be undervalued, while Materials and Industrials stocks may be overvalued.

Performance: Looking at our recent portfolios, the top-ranked ETFs have nicely outperformed the SPY, so a bullish-biased enhancement strategy has worked well.

However, the continued strong market momentum this month has resulted in even greater out-performance by the lower-ranked (fundamentally overvalued) sectors. So, all three long/short ETF portfolios have underperformed a straight long position in the SPY. This can happen during momentum rallies like we are seeing this month, in which the more speculative names lead the market.

Disclosure: Author has no positions in stocks or ETFs mentioned.