Weekly Trend Watch: Networking Stocks and ETF (IGN) Lead, Bonds Lose (TLT)

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Includes: IGN, SMH, TLT
by: Nick Perry

Last week we saw that despite the turmoil, very few groups lost ground, writes Nick Perry, who covers ETFs for Schaeffer's Investment Research. Oil-related stocks and energy concerns were the focus of the action in the aftermath of Hurricane Katrina, but biotech and utilities also showed gains. This week we once again find mostly gains.

Largest ETF Gainers and Losers Chart

Even though the trading week was one day shorter than normal we still find some groups on the move, and mostly to the upside. Of the 54 major ETFs I track for this chart, only two were showing losses for the week when I captured this graph. Leading the pack was the iShares Networking fund. This ETF received some helped from Adtran (NASDAQ:ADTN), which gained 19 percent after upping their guidance. It also didn't hurt that the three top weighted stocks in the fund, Motorola (MOT), Corning (NYSE:GLW), and QUALCOMM (NASDAQ:QCOM) gained 3.0 percent, 4.9 percent, and 4.5 percent, respectively, this week.

Outside of networking we see a fairly tight cluster of gains spread through a number of groups including energy and semis. And even the "lagging" groups such as utilities and financials still showed gains on the week. 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:

  • iShares Networking (NYSEARCA:IGN) +4.4%
  • iShares Semiconductor (IGW) +11.8%
  • iShares Nasdaq Biotech (NASDAQ:IBB) +4.6%
  • Energy Sector SPDR (NYSEARCA:XLE) +44.3%
  • Retail HOLDRS (NYSEARCA:RTH) -2.0%
  • Pharmaceutical HOLDRS (NYSEARCA:PPH) +1.0%
  • Health Care Sector SPDR (NYSEARCA:XLV) +7.4%
  • Semiconductor HOLDRS (NYSEARCA:SMH) +12.0%
  • iShares Energy (NYSEARCA:IYE) +38.7%
  • iShares Healthcare (NYSEARCA:IYH) +9.0%

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

  • iShares Financial Svcs (NYSEARCA:IYG) -3.9%
  • iShares Utilities (NYSEARCA:IDU) +18.6%
  • iShares Financial Sector (NYSEARCA:IYF) -1.5%
  • Telecom HOLDRS (NYSEARCA:TTH) -6.4%
  • Utilities Sector SPDR (NYSEARCA:XLU) +19.7%
  • Regional Bank HOLDRS (NYSEARCA:RKH) -4.4%
  • Internet HOLDRS (NYSE:HHH) -16.2%
  • Small Cap Growth (Pending:DSG) +5.3%
  • iShares Transport Average (NYSEARCA:IYT) -5.2%
  • iShares Treas Bond (NYSEARCA:TLT) +6.3%
This week's action in the semiconductor group has caught my eye. You might remember the chart below which we discussed in a column two month ago...

SMH chart

In early July, the group broke above a resistance zone that had been in place since mid-2004. When we left the SMH in that column, I said - "The group is in a short-term overbought condition so a pullback or pause may be in order. If the group does pullback, I would keep an eye on that support zone to be sure it holds." As you can see it has held as the group has drifted sideways to lower. This week the group looks like it is trying to turn higher as Texas Instruments (NYSE:TXN) and Intel (NASDAQ:INTC) offered comments (of varying implications) this week.

In the Trading Floor Blog I have been following the group and on Tuesday made some comments about some cautious comments I have been seeing from analysts. These comments spurred me to look into the SMH and its component members. Below are figures from Zacks on the analyst ratings for each member of the SMH.

ratings table

Here you can see the number of "buy" ratings, the total number of ratings, and the resulting percent as "buys." I set up my spreadsheet to color code the data. Bolded red is anything above 65 percent while bolded blue shows readings less than 50 percent. I know those aren't "symmetrical" levels but if you look at the overall distribution of "buy," "sell," and "hold" rankings from analysts, the data isn't evenly distributed. My only goal was to see how many stocks were already "overly-loved" and how many offered ample opportunities for upgrades.

As I noted in the blog, these figures seemed somewhat surprising to me as I had expected to see a much more optimistic picture. I had assumed that most of these stocks would be heavily favored, given the breakout in July, but that is not the case. A number of the stocks show readings near the 50-percent mark, which explains the overall readings at the bottom of the graph, while a number are relatively "ignored" by the Street.

Given the breakout and consolidation in the SMH, I thought this lack of enthusiasm from the Street was encouraging and worth noting in this space, too. However, as I said the blog, it is important to mention that these stocks are not without "issues." I ran them through our Equity Scorecard and found the overall average, for the stocks that have a reading, is just 4.7, which is relatively neutral so the picture has room to improve. On the upside stocks like AMKR, TER, and TXN carry scores near 7.0, while ALTR, INTC, and NVLS balance out the group with readings near 3.0.

Nick Perry (regressionchannels@sir-inc.com)

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