Barron's Sector Review, and a Sub-Sector Spread Play

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Sector Play by Michael Santoli

Highlighted companies:Software HOLDRS Trust ETF (SWH), Semiconductor HOLDRs (SMH)
Summary: A brief analysis of sector performance: No sectors are in negative territory for the year, although some of the perceived favorites, such as tech (+4.7%) and healthcare (+6.2%) have underperformed (+9.5% market wide). Leading sectors: telecom (+25%), energy (+14.1%). Consumer discretionary stocks have been the most volatile, falling until mid-summer and rallying aggressively since. A sub-sector play: Software HOLDRS Trust ETF (SWH) and Semiconductor HOLDRs (SMH) normally have an 80% correlation. Yet since spring, SWH has outperformed SMH by 25% -- a divergence level reached only twice in the past five years, followed by a dramatic reversal. "For traders willing to bet that this rubber band will retract rather than snap, the time might be right."
Quick comment: ETFs of mentioned sectors: Technology Select Sector SPDR (XLK), streetTRACKS Morgan Stanley Technology (MTK), Vanguard Information Technology VIPERs (VGT), First Trust NASDAQ-100-Tech Index (QTEC), PowerShares Telecom ETF (PRFQ), iShares Dow Jones US Technology (IYW), Health Care Select Sect SPDR (XLV), Vanguard Health Care VIPERs (VHT), iShares Dow Jones US Healthcare Provider (IHF), PowerShares Healthcare ETF (PRFH), iShares Dow Jones US Healthcare (IYH), Telecom HOLDRS ETF (TTH) ,iShares Dow Jones U.S. Telecom Sector Index ETF (IYZ), Vanguard Telecom Services ETF (VOX), PowerShares Dynamic Telecom & Wireless ETF (PTE), Consumer Discretionary SPDR ETF (XLY), Retail HOLDRS ETF (RTH), Vanguard Consumer Discretionary VIPERs (VCR), Energy Select Sector SPDR ETF (XLE), Vanguard Energy ETF (VDE), PowerShares Dyn Energy Exploration (PXE), PowerShares WilderHill Clean Energy ETF (PBW), PowerShares Energy ETF (PRFE), iShares Dow Jones US Energy Sector ETF (IYE), PowerShares Dynamic Software (PSJ), iShares Goldman Sachs Software Index (IGV), SPDR Semiconductor (XSD), iShares Goldman Sachs Semiconductor (IGW), PowerShares Dynamic Semiconductors (PSI) • Seeking Alpha commentary: Nick Perry's weekly Sector Week in Review • Semi Capacity Growth Needs To Slow Down • Semiconductors: Indicator for Tech and Broader Market • More Proof the Semis are in Trouble • With a Production Glut Already Underway, Semi Equipment Orders Continue Unfazed • Value Line's Positivity Towards the Semi Industry is Misguided • SOX: Is a Major Upswing In the Works? • Capturing Tech's Traditional Year-End Rally with ETFs • Retail, Semis the Most Overbought ETFs • Two Software ETFs With Very Different Constituents

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