Here are the Top Two Sectors to Trade Right Now

The stock market’s record winning streak was cut short on Tuesday afternoon following the news that the Senate was delaying their health care vote until after their Fourth of July recess. This means we could be looking at the potential for some volatility until then.

But to be honest with you… I’m really not a “why” guy when it comes to the markets. So whether or not the latest developments out of Washington cause more uncertainty is not my main concern.

What I care most about is giving you everything you need to spot the most profitable opportunities right now.

And that’s why I want to give you my top two sector picks  – and the best ways to play them…

Utility Shines While Energy Whines

I’m a big proponent of finding a balance between bullish and bearish opportunities. That’s how you maximize your profits and minimize your losses. I may not always equally balance the two, but I never advocate being 100% in either camp.

So today, I’m actually going to give you my top bullish and bearish sector to trade – and not for the reason you might think.

Now let’s get started…

BULLISH

You could obviously camp out within the Health Care and Tech sectors for strong bullish ideas, as both of these are typically the top two performing sectors. But what you might be surprised to learn is that the utilities sector, represented by the Utilities Select Sector SPDR ETF (XLU), comes in fourth place:

And since utility stocks rarely get the spotlight, I’m going to give them a little love today.

Utility stocks are typically deemed a “safe” place to park your money. The anticipated way to make money on them is to buy shares and sit back and wait for the dividends to come rolling in. Now there are cases being made right now that the valuations on these stocks are reaching overbought territory… But strong earnings and dividend growth could extend valuations and drive prices higher.

For those reasons, I’m naming the utility sector the top bullish sector to consider trading right now. And these are the top 10 stocks of the batch:

As far as the best bullish ways to play the utilities sector for fast profits, consider long calls or bull call spread. Just keep in mind the trick I showed you Wednesday for trading options on dividend stocks.

BEARISH

The one sector you’d normally think is up there in performance is energy, represented by S&P 500 Energy Sector SPDR (XLE). But when you look back at this chart again…

… you can clearly see that it’s not only the worst of the 10 select sector ETFs – it’s the only one with a negative performance number, too. It’s also the only sector in the red for the year.

Energy has a historically positive track record of trading higher between mid-February and mid-July. In fact, this move has happened 75% of the time over the last 16 years. But as you can see, this is one of those rare years it did not perform. Now you could look for the energy stocks that could bounce to play for profits. But global oversupply, increasing U.S. oil production, and uncertainty as to whether or not the Organization of the Petroleum Exporting Countries (OPEC) will go through with the cuts they’ve been talking about will continue to put strains on the price of oil. So I anticipate the weakness within this sector to continue.

That’s exactly why I chose it as the top bearish sector to play right now. And your best bearish trade opportunities may come from this list of the worst-performing energy stocks:

And your best bearish strategies to employ include, but aren’t limited to, long puts and bear put spreads.

Now as of the time of writing, I must note that almost all of these stocks boxed in, which are the 10 lowest-performing stocks year-to-date (YTD), are at or near their lows for the year.

If you see strength coming back into the stocks from a technical point of view or some fundamental news on the horizon that could be a positive for this sector – or if you want to simply take a contrarian view – you can always consider going with a bullish strategy. But if you’re thinking in this contrarian manner on energy, I strongly urge you to consider Longterm Equity Anticipation Securities (LEAPS) or options that expire farther out in time because the turnaround in oil isn’t likely to happen overnight.

And remember…

This article isn’t intended to be a research piece where I delve into all the reasons why both sectors are outperforming or underperforming. It’s designed to show you the upside profit opportunities I see in utilities and the downside profit opportunities in energy.  I will continue to help you spot the opportunities, create the low-risk trades, and execute and manage your trades flawlessly.

My goal is to help you identify the proper option trading strategies to employ in sectors that shine or whine so you can always have a smile on your face.

To your continued financial success…

Tom Gentile