Strongest Momentum In Chips, Oil To Start 2006 (ETFs: PSI, OIH, IGW, PWJ, SMH)

Nick Perry (Schaeffer's Investment Research) submits: Last week we discussed the biggest movers of 2005 and I said I was making a few changes to expand my coverage. Here is the first stage of those changes:

I know that change isn't always regarded as a good thing, so I want to ease into them so that everyone is comfortable. Perhaps the biggest modification to my list is the addition of PowerShares (more information on PowerShares can be found here) which are noted by the "PS" at the beginning of their name.

I am still on the fence in terms of what to make of these funds but thought I would throw them into the mix to see how they fit. They tend to have light volume so I may end up removing some of the ones that overlap more actively traded ETFs, but the funds do track a few unique markets I would like to keep tabs on.

In addition to the PowerShares, I have added some other ETFs and added a few more data points in the graph to account for the overlap. With that out of the way, let's talk about this week's action.

While the trading week was shortened by one day, it was not lacking for upside movement. If you are a regular reader of this column, you might think that the changes I made resulted in some sort of error. If so, I understand. That was my first impression when I looked at the results.

"Obviously", I thought, "I must have inadvertently changed the formulas. I know this week was strong, but we haven't seen this type of movement in some time"... I then went about manually calculating some returns off of my charts and found that they were indeed correct. What a week...

Roughly speaking, the strongest moves were centered in energy and technology funds. Semiconductors took the official lead, but it was a close race with networking and internet in close pursuit. Some late-day volatility might even change the positions. Oil services lead the energy funds, but again, all had strong gains. In fact, most groups gained ground as only a small handful of funds didn't move higher. Retail lagged the action, but it did so by remaining near breakeven, as opposed to actually showing a significant decline.

Turning to the longer-term perspective shows the next change I made. The bullets below show how the ETFs listed above have fared over the last six months, prior to this week. In other words, it shows how they had been performing before this week's move.

Prior Six-Month Returns for This Week's Top Performing Sector Exchange Traded Funds:

* PS Semiconductors (PSI) +8.3%
* Oil Service HOLDRS (OIH) +23.7%
* iShares GS Semiconductor (IGW) +9.9%
* PS Oil Services (PXJ) n/a
* Semiconductor HOLDRS (SMH) +3.1%
* iShares GS Networking (IGN) +11.3%
* Internet HOLDRS (HHH) +18.8%
* PS Energy Exploration & Production (PXE) n/a
* SPDR-Energy (XLE) +8.8%
* Wireless HOLDRS (WMH) +3.3%
* iShares DJ U.S. Energy (IYE) +7.3%
* iShares DJ U.S. Technology (IYW) +5.1%

Prior Six-Month Returns for This Week's Bottom Performing Sector Exchange Traded Funds:

* iShares DJ U.S. Consumer Goods (IYK) +0.6%
* SPDR-Industrial (XLI) +5.4%
* PS Food & Beverage (PBJ) -4.1%
* iShares DJ U.S. Consumer Services (IYC) -1.1%
* PS Retail (PMR) n/a
* SPDR-Consumer Staples (XLP) +1.3%
* iShares Lehman 1-3 Year Bond (SHY) -0.8%
* iShares Lehman Aggregate Bond Fund (AGG) -1.8%
* iShares Lehman 7-10 Year Bond (IEF) -2.1%
* iShares Lehman 20+ Year Bond (TLT) -2.9%
* iShares DJ Transportation Average (IYT) +17.3%
* Retail HOLDRS (RTH) -3.8%

I switched to a rolling six-month month return, from the somewhat-static year-to-date figure, because I wanted to have a better measure on intermediate-term momentum. I excluded this week's return because I thought it might help highlight trends. For example, it seems that this week's leading groups had all been showing some momentum over the prior six months while this week's laggards had tended to be stagnant.

Looking forward, the next change I am contemplating deals with ETFs that track the foreign markets. My question, though, is whether this is something you are interested in, so I created this poll. If you are interested, please tell me what time-frame you think is worth discussing. Is your interest more short-term or would you rather track longer-term performance. I will discuss the results next week...