While we navigate through the current market, which is in a state of transition, we can look to one particular sector to be a sort of North Star for us.
This sector has served as a guide through this kind of market in the past to those who knew to use it, and it could help us profit right now while everyone else tries to figure out how to play the market swings.
This could be your profit guide…
When the market entered a transitional period in 2007 before crashing down in 2008, the financial sector was ahead of the curve the whole way through.
It experienced the first drop that pushed the bull market into a transitional one, and it also went through the recovery pullback and beginning of the crash before the overall market did.
If you used the financial sector to navigate through that time, you would have seen everything coming, and you would have been able to protect yourself AND make money along the way.
So let’s see how the financial sector is doing right now…
State of the Financial Sector
Why not start by looking at an exchange-traded fund, or ETF, for the financial sector: XLF?
We can do so by checking the chart for it from Stockcharts.com:
Those colorful curvy lines are the moving averages and the staggered line is the actual price of the financial sector ETF.
The moving averages represent the average price of the XLF over a certain time frame.
The top curvy line is the 50-day moving average, the middle line is the 150-day moving average, and the bottom line is the 200-day moving average.
These averages help us determine the health and strength of different securities.
Right now, the financials sector appears to be in the middle of a bounce back, just like the overall market. So far, this chart actually looks very similar to that of the market as well.
In the middle of October, XLF fell below its 200-day moving average just as the market did, and that pushed us into the transitional period we are in now.
And compared to the other market sectors, such as healthcare and utilities, the financials sector is right in the middle in terms of relative strength.
Over every major category used to determine the heath of the market sectors, the performance of the financials sector over different time periods basically evens out, leaving it in the middle of the pack.
Right now, the financials sector isn’t telling us to make drastic moves in either direction, but I will definitely be watching it as time goes on to make sure I know which way the market is headed…
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