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Step #1: Use relative strength to select a sector.

What I like to do is to compare the relative performance of multiple sectors over the recent down period. My first sectors to investigate will be those sectors that are showing any gains for the period.

Now, in a broad market sell-off, typically all of the sectors will be showing losses. What I will do, then, is look at those sectors that are showing the smallest losses.

What we are doing, of course, is analyzing sector relative strength. We are determining which sectors are outperforming other sectors on a relative basis.

NEXT: Measure the sector's performance.