Week-in-Review: Oil Sector Leads Market Down

Nick Perry (Schaeffer's Investment Research) submits: Last week, we saw that most groups showed mild gains with housing and realty leading. This week we see a bias to the downside, as two-thirds of my list heads lower:

click to enlarge

Before we talk about the action I would like to announce a change. The New Year brings with it the opportunity for reflection and the impetus for change. I thought I would take this to heart and offer a new look to this column.

Based on feedback you have offered, I believe the graph above is worth keeping as a quick overview of the week, but I thought that a bit more detail might be warranted in regard to the price action. To supplement the graph above, I have created the charts below that highlight the recent performance of the top and bottom three ETFs.

Each chart features the 50-day moving average and a nine-day relative strength index [RSI]. I use the moving average (the green line) as a simple way to gauge trends and the RSI (red line below the price) suggests whether the ETF is overbought or oversold. (More information about using the RSI can be found here.) With that introduction out of the way, let's turn our attention back to the action of this holiday-shortened week.

Even though the week was shortened to just three trading days, we still have a bit of volatility - especially in the energy complex. The U.S. Oil Fund (USO) was hit for more than eight percent and energy-related ETFs followed closely behind. This selling pushed the USO to a new low (though has only been trading for less than a year) and the chart below shows it is pushing into oversold levels. The PowerShares Oil Services (PXJ) and Oil Service HOLDRS (OIH) are also hitting oversold levels as both funds plunged below their 50-day moving averages. The oversold reading could suggest a short-term pause in the selling could be at hand, but the break in moving average suggests the recent uptrends could be rolling over.

While the gains were milder than the losses, the Internet HOLDRS (HHH) and Biotech HOLDRS Trust (BBH) were both able to gain some ground. The PowerShares Networking Fund (PXQ) rounds out the top three, and as a whole, helps to explain the relative outperformance of the NASDAQ 100 Trust (QQQQ). The QQQQ is carries a good deal of exposure to tech and biotech.

A check of the charts show an interesting situation with the PXQ. The networking fund has trended along its 50-day moving average as it flirts with its peak from November. A breakout here would put the ETF in a position to challenge its annual high of 18.20.

Top Performing ETFs

Created with SuperCharts by Omega Research

Bottom Performing ETFs

Created with SuperCharts by Omega Research