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The relative performance among sector ETFs stayed roughly this week, with the top sectors in 2010 — energy (XLE), consumer discretionary (XLY) and materials (XLB) — retaining their top spots, although the upward momentum we saw in energy and materials did not continue into the new year. One can gain critical insights into how to build portfolios at the sector level by examining the following table:

Assets Class

Symbols

01/05

Trend

Score

12/29

Trend

Score

Direction

Energy

XLE

14.72%

17.53%

v

Consumer Discretionary

XLY

14.32%

14.23%

^

Materials

XLB

14.24%

16.82%

v

Industrials

XLI

14.01%

14.43%

v

Telecom

IYZ

13.08%

11.69%

^

Technology

XLK

10.35%

9.81%

^

Financial

XLF

9.88%

9.56%

^

Consumer Staples

XLP

6.52%

7.57%

v

Healthcare

XLV

5.18%

4.63%

^

Utilities

XLU

3.65%

3.91%

v

Marking a shift in sentiment, the energy sector (XLE) saw its trend score lowered this week. Oil prices fell in response to a stronger dollar and weaker sentiment in the equity market. Natural gas also displayed weakness as concerns of frigid weather driving demand for the heating fuel eased. The materials sector (XLB) has been drifting downward since the beginning of the new year.

Investors are still optimistic about the post-holiday spending power of consumers; consumer discretionary (XLY) continued to deliver solid performance this week.

Consumers’ increased use of smart phones and tablets is driving demand for telecommunication service providers and the telecommunications sector (IYZ) has been riding the up trend.

Market lagging sectors -- healthcare (XLV) and utilities (XLU) -- ended 2010 pretty much flat and remain at the bottom of our trend table. Fundamentals are still weak throughout the healthcare supply chain, with margins being pressured as a result of the high unemployment rate and the new healthcare law.

For more detailed total return performance, please see here.

click to enlarge images

Source: A Pivotal Point for Energy and Materials Sector ETFs