Homebuilders, Semis Drive Another Strong Week

Nick Perry (Schaeffer's Investment Research) submits: Last week we saw a broad-based rally with drug stocks leading the charge. This week we see a change in leadership but very little in the way of weakness:

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More than 85 percent of my list gained ground this week with housing stocks taking the lead. A look to the bottom half of the list quickly reveals that the bulk of those not participating in the gains were related to energy and natural resources. The main exception to that generalization is the weakest ETF this week - Internet HOLDRS (HHH).

The underperformance of the HHH can largely be attributed to its weighting. The fund has heavy exposure to Yahoo (YHOO) , which was pummeled after its earnings report failed to inspire the Street. The HHH also has the unfortunate double-whammy of no exposure, at all, to Google (GOOG) which moved up this week.

Following the SPDR Homebuilders (XHB) higher are semiconductors, financials, and transports. The Semiconductor HOLDRS (SMH) , PowerShares Semiconductors (PSI) , and iShares GS Semiconductor (IGW) are joined by a number of financial-related ETFs and the iShares DJ Transportation Average (IYT) .

A look at the charts below shows a couple of interesting points. First is the breakout for the Semiconductor HOLDRS (SMH) . For nearly eight months the SMH has been held in check at resistance near 35. The group has pushed above that area this week, but has now also pushed into a fairly extreme overbought condition. It will be interesting to watch the action next week to see if that SMH can hold above that former resistance.

The other interesting point involves the Oil Service HOLDRS (OIH) . Two weeks ago we saw that the OIH was pushing into its December peak and showing a short-term overbought condition. This week's drop has pulled the OIH out of the overbought condition but hasn't yet pushed it into an oversold condition. (Note - details about the indicators used in these charts can be found at the bottom of this column.)

Each chart features the 50-day moving average and a 9-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.)

Index performance this week:

Source: Google Finance