Traders,

Yesterday saw profit-taking strike stocks. But not every sector succumbed to the selling pressure. Instead, we saw rotation out of economically sensitive sectors and into defensive ones. In other words, the money fleeing technology, industrials, and consumer discretionary found a new home in utilities, health care, and consumer staples.  

Though a single session, the movement was straight out of the recession playbook. In times of trouble, fund managers who must own stocks seek shelter in areas less vulnerable to a slowdown.

So what do you do about it?

First, if you think the rotation persists, look for bullish plays in defensive sectors. However, a pullback is likely needed at this point for a lower-risk entry.

Second, consider this a good case study for why having diversification across sectors can be helpful. Investors with all their exposure in offensive sectors get hit harder on a day like yesterday than those with positions spread into defensive sectors too.

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Chart of the Day: Sectors

This graphic is from the Bear Market Survival Guide. It shows how consumer staples, health care, and utilities fell the least during the 2008 bear market.  

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