Exchange-Traded Fund focus - leading and lagging sectors (focus on HHH and SMH)

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 |  Includes: HHH, SMH
by: Nick Perry

ETF Investor welcomes Nick Perry, who writes about ETFs for Schaeffer's Investment Research. Here's Nick's weekly column for Schaeffer's on ETFs, reproduced in full (with his permission):

I like to look at sectors relative to each in order to see what trends may be developing. I also like to look at multiple time frames to help reveal the underlying flow of money. An added bonus of the ETF Center is that you can directly analyze each ETF by clicking on its ticker symbol.

As I recently noted, I have begun to feature the graphs that I created for the Trading Floor Blog in Schaeffer's Gold as some of you said the blog charts were useful for supplementing the data you can already pull in the ETF Center . The graphs below are based on a select list of ETFs and indices that I follow in the blog and show the top and bottom performing groups from last Friday's close through this afternoon (approximately 2:00 PM).

Etf050605etfw

The trend of whipsaw moves continues.  Last week we saw a mixed picture that was biased toward the downside and noted how this was a reversal of the strength we had seen the previous week. Now we are once again shown a picture of strength as just eight ETFs from my list showed declines this week.

You can also see that some of this week's worst performing groups were some of last week's best performers. On the top performing side of the graph, we see an eclectic mix with gains in the three- to four-percent range. Internet and semiconductors top the list, but as noted last week, these two groups have been struggled this year. For more perspective, consider the weekly charts below.

Etf050605hhh_1

Etf050605smh

Here you can see that the SMH has been trapped in a range for the past nine months while the HHH recently broke out of an uptrend. While these two charts show different trading patterns, there is a similarity. First, neither is currently showing a strong uptrend and second, both are very near critical support. With that in mind, now turn your attention to the screen shot below that I pulled from one of the tools in Schaeffer's Gold.

Etf050605sector

This filter computes an average equity scorecard reading for each sector based on the overall scorecard readings of the component stocks. I then sorted the list based on those that had the worst average score. As you can see, both Internet stocks and semiconductors are among the lowest ranked groups. This would imply that complacency is dominant and therefore offer contrarians a warning sign. I would keep a cautious eye to make sure these groups remain above the support shown in the charts above.

Turning to my graph of the major indices, we see how some of the key barometers are moving relative to each other.

Etf050605indexw

This perspective shows the overall gains that most groups enjoyed this week. It also highlights the divergence we are seeing between gold (the metal) and gold stocks, which raises some questions about what to expect from that area. Last week we discussed the relative underperformance of the small-cap area and this week we see that the group is trying to rectify this, as the RUT is one of the best performing groups. I think it will be important to monitor this group to see if it can hold these gains as a failure may hint the overall bounce we saw this week is not here to stay.

As I said when I introduced this column, it may seem like simplistic information, but my experience has been that many times we overlook the basics. Just knowing this data tells me that which groups have held up and which have seen money outflows.

Nick Perry (regressionchannels@sir-inc.com)