Leading and lagging sector ETFs (BBH, SMH)

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Includes: BBH, SMH
by: Nick Perry

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, writes Nick Perry, who covers ETFs for Schaeffer's Investment Research. As usual, here are the top and bottom performing groups from last Friday's close through this morning:

Etf071505etfw

In my column last week, we saw biotech was strong and touched on differences between the iShares Nasdaq Biotech  (NASDAQ:IBB)  and Biotech HOLDRS  (NYSEARCA:BBH). This week we see that the BBH once again takes the lead, along with a number of technology related stocks. On the downside, we see a group that can generally be categorized as commodity, real estate or bond related. Energy and oil-related groups saw the biggest declines, but those moves are smaller than what we saw on the upside list.

A new feature that I thought would be helpful is to 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:
    •      Biotech HOLDRS  (BBH)  +20.5%
    •      Internet HOLDRS  (NYSE:HHH)  -19.5%
    •      iShares Semiconductor  (IGW)  +6.7%
    •      Software HOLDRS  (NYSE:SWH)  -8.8%
    •      iShares Networking  (NYSEARCA:IGN)  -5.1%
    •      Semiconductor HOLDRS  (NYSEARCA:SMH)  +9.9%
    •      iShares Software Index  (BATS:IGV)  -4.9%
    •      iShares Technology Indx  (NYSEARCA:IGM)  -2.1%
    •      Regional Bank HOLDRS  (NYSEARCA:RKH)  -2.3%
    •      iShares Technology  (NYSEARCA:IYW)  +0.1%

Year-to-Date Returns for This Week's Bottom Performing Sector Exchange Traded Funds:
    •      streetTRACKS Gold  (NYSEARCA:GLD)  -4.2%
    •      iShares C&S Realty Majors  (BATS:ICF)  +7.6%
    •      iShares COMEX Gold Trust  (NYSEARCA:IAU)  n/a
    •      iShares Treas Bond  (NYSEARCA:TLT)  +5.9%
    •      iShares Real Estate  (NYSEARCA:IYR)  +5.8%
    •      Wilshire REIT Fund  (NYSEARCA:RWR)  +7.8%
    •      Oil Service HOLDRS  (NYSEARCA:OIH)  +20.5%
    •      iShares Energy  (NYSEARCA:IYE)  +21.9%
    •      Energy Sector SPDR  (NYSEARCA:XLE)  +24.9%
    •      iShares Natural Resource  (BATS:IGE)  +17.9%

As I mention at the top of this column, I like to look at multiple time frames to help reveal the underlying flow of money. For example, the data on the BBH tells me that this week's gain is part of a strong move this year. Conversely, the gain in the HHH appears to be bounce back from intermediate-term weakness. On the downside list, you can see that this week's drop in energy related groups comes amid strong year-to-date performance. Those who like to buy pullbacks in the midst of uptrends might find these sorts of patterns worth exploring.

One of the points we discussed last week was the chart of the Semiconductor HOLDRS  (SMH), as it pushed into resistance. Here is an updated version of the chart.

Etf071505smh

The SMH has accomplishing something it has not been able to do for eight months. It has pushed above resistance and now trades at its highest level since last summer. According to technical analysis theory, this former resistance should now act as support. 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.

Nick Perry (regressionchannels@sir-inc.com)