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This Correction is a Sector Rotation; Energy Drives Gains

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This Correction is a Sector Rotation; Energy Drives Gains

As market pundits continue to discuss that a market correction is eminent, it has become obvious that a correction is already underway, but it comes in the form of a sector rotation. High flying momentum stocks have come under significant pressure, but as opposed to seeing a broad market selloff, investors have been piling into energy stocks.

On Friday, both the NYSE:OIH (Market Vector Oil Services) and the NYSEARCA:XLE (Energy Select Spider) where higher by nearly 1%. This comes as large cap momentum stocks such as Facebook is down nearly 1%. The transition into 2013 lagers seems to be the replacement correction market participants are using. Bio-tech shares have been hammered since the beginning of March with the IBB down nearly 15% since the beginning of March only 5% from bear market territory.

The question for traders is whether this sector correction can continue without the momentum stocks leading the way. The S&P 500 index and the Dow Industrials notch up all-time highs this week, led by the transports. It seems that investors believe that the recent lagers can be the leaders into the balance of 2014.

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