Black Christmas and the Crash of the U.S. Stock Market; Gold and Oversold Sectors Offer the Best Trading Opportunities

The S&P 500 index dropped 2.64% yesterday and lost more than 20% of its value compared to the recent peak:

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In previous articles, we described that crash-like conditions were developing. In our view, we are witnessing a slow-motion stock market crash that possibly forecasts a global economic slowdown.

Yesterday, the panic selling impacted almost all asset classes, with the exception of gold and Treasury bonds, which are traditionally viewed as “flight to safety” trades.

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In our view, the most oversold sectors will likely bounce in the coming days and may offer a short-term buying opportunity to aggressive traders.

To identify the most oversold sectors, we use the Relative Strength Index (RSI) indicator. When the value of the RSI is less than 30, we regard the investment as oversold (denoted with blue circles on the charts). When the RSI is less than 20, the investment becomes highly oversold.

Out of the 11 largest U.S. sectors, the energy, the industrials, the consumer staples, and the financials dropped the most yesterday, while also triggering the highly oversold condition:

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The real estate sector is oversold, as well, and we think that this sector also has the potential for a short-term rally:

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View fund rankings at FidelitySectorReport.com for more information.

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Investor’s Business Daily Article on International Markets

In the news: read article at Investors.com by FidelitySignal editor, Gabe Varga, CMT.

 

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Sector Rotation: Social Media ETF Outperforms Most Sector Investments

What are the best equity sectors to invest in, as the market reconfigures itself for the late December rally? We look for the answer using an unbiased ETF rotation screen (source: ETFnext.com):

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The screen shows that the Global X Social Media Index Fund (SOCL) ETF is newly rotated to the top 5 list, based on its increased price momentum. SOCL is an attractive investment, because it provides a diversified way to buy social media stocks. Top holdings include Facebook, Tencent, LinkedIn, SINA and Twitter (source: Morningstar).

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A closer look at the 1 year chart of SOCL shows that a strong uptrend started in July, but SOCL corrected in early November. The correction coincided with the highly publicized Twitter IPO on November 7. SOCL regained its positive trend in early December and now has one of the strongest price momentum compared to other sectors.

The chart also reveals the divergence between the volume and price trends, and that the recent advance is nearing an overhead resistance. Both the divergence and the proximity of the resistance level should caution investors about jumping in right now. On the other hand, a break out above the resistance on increased volume could make SOCL one of the most exciting investments of 2014.

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