3 Market Sectors You Should Avoid at All Costs

Remember that correction we’ve been quietly talking about over the past couple of months?

Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue to tumble.

Of course, everyone claims to have seen this move lower coming a mile away. But that won’t stop the panic if we do begin to see momentum pick up to the downside. Guessing that a correction is around the corner is one thing — but making the right moves while stocks tumble is a completely different animal.

Today, I want you to forget about the big indexes and the big, red numbers they’re showing on the financial news channels. Instead, you should focus on three sectors that look like strong sells. These are three groups of stocks that could have a lot more room left to drop — whether the major averages find their footing or not this month…

First up is homebuilders.

Now, I know what you’re thinking. I’ve been bullish on homebuilders since last year. In fact, I told you as recently as a few weeks ago that a do-or-die moment for homebuilders could quickly send shares higher.

Spoiler alert: it didn’t.

iShares Dow Jones U.S. Home Construction ETF (NYSE:ITB)

Homebuilders are sliding fast, breaking through critical support. They’re trading at new 2014 lows as I type. Stay away from these stocks right now. There’s plenty of room for them to drop much lower…

Next up on the sell list is solar stocks — another one of my favorite sectors.

Don’t get me wrong — I still like the solar story. With solar costs getting cheaper by the year, the industry is starting to get competitive. But the story isn’t matching up with the price action right now. With the Guggenheim Solar ETF (NYSE:TAN) breaking down below its 200-day moving average yesterday, its time to step aside…

Guggenheim Solar ETF (NYSE:TAN)

If TAN loses $37, we could see an even bigger drop before the fourth quarter even begins.

Finally, we have the big consumer staples stocks. The Consumer Staples Select Sector SPDR (NYSE:XLP) was locked into a tight, uptrending channel since the first quarter. XLP is made up of all the mega-cap consumer names like Procter & Gamble, Coca-Cola and Walmart. These are the “safe” stocks investors were fighting to buy earlier this year as they fled the more speculative areas of the market.

But now, these names are also starting to break down.

Consumer Staples Select Sector SPDR (NYSE:XLP)

XLP has lost its mojo. This once-stable sector is rolling over on high volume. That means its time to trim your holdings…


Greg Guenthner
for The Daily Reckoning

P.S. Don’t get caught up in the hysteria surrounding yesterday’s sharp move lower. If you keep your wits about you and listen to the market’s signals, you’ll survive — and even get the chance to book gains — while everyone else panics. To discover specific ways to do just that, sign up for the FREE Rude Awakening email edition, right here.

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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