Energy Sector Leads On Snapback Week

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw an outright sell-off as 90 percent of my list lost ground. This week we find a snapback rally:

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More than 85 percent of my list grained ground with ETFs related to energy, semiconductors, and basic materials leading the charge. With almost as many funds gaining ground this week as we had losing ground last week, you might be temped to think we recouped all the losses. That, however, is not the case as the magnitude of the bounces was too small. To see what I mean, take a look at last week's chart and note that all of the bars on the bottom half showed losses of at least six percent. Most of this week's gains were contained below three percent. (And, of course, it goes without saying that a six-percent rebound would not completely erase a six-percent decline.)

The Oil Service HOLDRS (OIH), PowerShares Semiconductors (PSI), and PowerShares Oil Services (PXJ) pulled ahead of the pack while the Internet HOLDRS (HHH), iShares Lehman 20+ Year Bond (TLT), Software HOLDRS (SWH), and U.S. Oil Fund (USO) lagged the action. The divergence between oil and the oil service and energy ETFs caught my eye.

It looks like last week's selling may have pushed the energy and service funds out of "alignment" with the oil. Looking at a short-term correlation between the U.S. Oil Fund (USO) and the Oil Service HOLDRS Trust (OIH) shows a fairly strong tendency to move together ahead of last week's sell-off. The short-term correlation has dropped since that sell-off.

Index performance this week:

Chart: Google Finance