If you take a step back, trading and investing can be a very unusual way to make money.

Most of the time in business, you make money almost exclusively from success. From seeing a business grow and prosper and collecting the benefits.

The stock market, though, can often present an opportunity in adversity.

When the situation looks the worst, it may be the best time to buy.

Right now, there is a terrible tragedy happening in California. One that has displaced thousands and created billions of dollars of damage.

It is also one, though, that has created trading opportunities.

Today’s HX Trader idea is one of these opportunities. Here is the idea…

The idea is the SPDR S&P Insurance ETF (ETF: KIE).

KIE is an exchange-traded fund that seeks to replicate the performance of the S&P Insurance Select Industry Index. It is a market capitalization-weighted index that measures the performance of publicly traded companies in the insurance industry in the US.

There are 54 stocks held in the ETF, and they range in weighting from roughly a 1% to a 2% holding. Here are the top 20 holdings of the ETF…

The index holds a very diversified group of insurance companies across the various areas of insurance including life, auto, liability, casualty, and property.

Recently, the index – and the ETF – have been crushed.

Here is a price chart of the ETF along with our key technical indicator – the relative strength index or “RSI” – over the last couple of years…

The index hit an all-time high recently of over $62 per share at the end of November. Since then, it has fallen over -10%.

The sell-off began in early December as interest rates began to move higher.

The relationship of interest rates to the results of insurance companies is complex, especially when looking at over 50 broadly diversified companies.

The sell-off based on higher interest rates began to make the ETF an interesting buy. First, because interest rates look deeply overbought and are likely to pull back. Second, because it is unlikely there will be a negative impact on the ETF.

With the outbreak of the fires in California last week, we saw the index get hit even harder.

The insurance industry – those exposed to California property insurance – is about to experience perhaps the most expensive natural disaster in the history of the United States.

This is very real and will have an adverse material impact on several companies. Some of this will spill over to some companies even if they are not directly exposed to California.

Like interest rates, however, the relationship is complex and across an extensive portfolio of diversified companies.

What mainly got our interest was how oversold the index had become last week.

The ETF sold below our key 30 RSI level, indicating a deeply oversold stock. Earlier this week, it traded back above this level and triggered our "buy" signal.

Here is a table showing how the ETF has performed in the future when it triggers this “buy” signal…

Over the last decade, buying at these oversold levels has made money over 90% of the time. Historically, it has not been the highest return, but we love the high probability.

The insurance business is about probabilities. There are no guarantees.

This is just like trading. We think now is the time to take advantage of the losses and buy this ETF.