This Sector Rises As Most Fall
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As you might have guessed after a day like yesterday, we saw the defensive sectors rise to the top of the performance list, leading the pack as investors still seem to be spooked by the ripples caused by the Fed rate hike from earlier in the week. With that, real estate and utilities topped that list. However, this does not mean they will remain there for very long.
As we all know, in a market like this, this is subject to change on a moments notice. At the time of this writing, the market is climbing again. The S&P 500 is still looking for support after rejecting from that 4200 area. If this resembles anything like the last time we rejected this area, we could see a drop as low as 3800 before find a meaning reversal.
For now, even though the market has climbed overnight, the trend still remains down. Since the trend remains lower, the best trade to look for is either a weak sector that will become weaker by any more pull in the market, or looking for relative strength in an otherwise faulty market. With this in mind, let’s look for a sector that presents us with a high probability setup.
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
As the market falls, there is one sector we can expect to ride out the storm a bit better than other sectors. With financials falling and investors fleeing from the tech sector, oil could be ripe for a trade. However, the price of oil has taken some lumps over the past couple weeks, so you may want to exercise patience on this trade and let it play out before you jump in with both feet.
Looking at the XOP, we have found some support at the $115 mark and if the overall market continues to pull, we could see the price bounce or even full on reverse here. Keep an eye on this level going forward as the bounce has seemingly started, although it is tough to tell how strong that bounce will be as it has just started.
Remember, patience and gauging price action are going to be your best tools for validating this trade setup or not. Use them wisely…
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