Retail ETF Looking Weak Due to WMT, and Analysts Too Bullish on Top S&P 500 Stocks

Last week, we saw a balanced picture of sector ETF performance, with relatively small gains and losses as energy/natural resources rallied while a mix of technology, biotech, and real estate lagged, writes Nick Perry, who covers ETFs for Schaeffer's Investment Research. This week we see a much less "balanced" picture as decliners outpaced advancers.

Gains were capped below one percent as the best performing groups barely kept their heads above the break-even mark. On the downside, see that losses were spread across groups such as retail, basic materials, oil services/energy, and natural resources.

For a longer-term perspective, the bullets below show the year-to-date returns for the ETFs listed above.

Year-to-Date Returns for This Week's Top Performing Sector Exchange Traded Funds:

Regional Bank HOLDRS (RKH) -4.0%
iShares Consumer Goods (IYK) +0.6%
Consumer Staples SPDR (XLP) +0.6%
iShares Treas Bond (TLT) +5.8%
iShares Nasdaq Biotech (IBB) -1.0%
iShares Financial Svcs (IYG) -4.3%
Wilshire REIT Fund (RWR) +6.5%
Financial Sector SPDR (XLF) -2.6%
iShares Technology (IYW) -1.0%
iShares Semiconductor (IGW) +6.9%

Year-to-Date Returns for This Week's Bottom Performing Sector Exchange Traded Funds:

Consumer Discretionary (XLY) -3.9%
streetTRACKS Gold (GLD) -0.3%
iShares COMEX Gold Trust (IAU) n/a
Retail HOLDRS (RTH) -0.7%
Materials Sector SPDR (XLB) -5.6%
Oil Service HOLDRS (OIH) +33.3%
iShares Basic Materials (IYM) -3.4%
iShares Energy (IYE) +28.8%
Energy Sector SPDR (XLE) +32.7%
iShares Natural Resource (IGE) +25.1%

When you consider last week's action and this week's action together, it seems that groups such as the XLE and the IGE are merely giving back gains recent gains as those ETFs continue to show strong year-to-date gains.

Meanwhile, the RTH caught my eye. The group was hurt by, among other things, Wal-Mart Stores (WMT), which is the most heavily weighted stock in the RTH and showed a poor reaction to this week's earnings report. Given the "stature" of WMT, those interested in the RTH might want to keep a cautious eye on WMT as the stock is testing a critical support level.

This monthly chart shows the recent downtrend in the context of a long-term trading range. The current malaise has brought WMT to the lower end of this range. A breakdown here would serve as a drag on the RTH. The action in WMT is especially critical given that a check of Zacks shows that 12 of 18 analysts (67 percent) rank WMT with a "buy" rating. In other words, the potential for capitulation and downgrades is a risk to consider.

And speaking of analysts ratings, I thought another piece of information was worth passing along. I was looking at the iShares S&P 500 Index Fund (IVV), which tracks the S&P 500 (SPX) and came across the analysts ratings from Zacks for the 10 largest components...

As you can see, this is clearly not an underloved group as all of these stocks show at least 50 percent of the ratings as "buys" and, in total, we see that 145 of the 210 ratings (69 percent) are "buys."

I want to point this out to expound on a point about sentiment. While I believe this shows overall complacency, this doesn't dictate that the market has to fall. It merely shows few seem braced for rough times. In other words, market turbulence has the potential to catch the Street asleep at the buy button...

Nick Perry ([e-mail])

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