In early March, the exchange-traded fund Financial Select Sector SPDR (XLF) dropped to just $6 per share. This was a huge fall off from the XLF’s peak price of $38 two years before. There’s probably no better example of the how the credit crisis pummeled investors than by looking at the decline and fall of this ETF.

The good news is that for the brave souls who bought the XLF nine months ago, they’ve seen their investment more than double. In fact, the XLF hit an intra-day high of $15.76 nearly two months ago. Since then, the financials have actually been trailing the broader market.

The lesson here is that identifying promising sectors is a crucial aspect of successful investing. The fact is, stocks in the same sector are highly correlated in the short- and intermediate-term. I also want to stress that it’s important to identify weak investment sectors. For 2010, I see several investment sectors that investors would be wise to avoid.

Investment Sector #1 – The Materials Sector

One of the top sectors to avoid is the materials sector. If you own, iShares S&P Global Materials Sector Index Fund (MXI), I recommend selling it as soon as possible. In my Blue Chip Growth service, we just banked a 27% profit in this ETF, but it no longer is a good opportunity. The weak dollar has boosted many industrial commodities, but the overall economy is still weak.

Investment Sector #2 – The Housing Sector

Another sector to steer clear of is the housing sector. While there have been some signs of strength in the housing market, I don’t currently recommend any homebuilders. Plus, some of the major homebuilders like Toll Brothers (TOL), Pulte (PHM), KB Home (KBH) and MDC Holdings (MDC) rate an F — Strong Sell in my Portfolio Grader system. Other homebuilders like Lennar (LEN) and DR Horton (

DHI) are also in the Sell category.

I also suggest investors avoid the Homebuilder ETF (XHB). This ETF fell from $46 per share in 2006 to $9 earlier this year. This shows you just how vulnerable you can be if you misjudge a sector. Although the XHB has rebounded some this year, I caution investors to stay away from the homebuilding sector. Homebuilding will come back, but it may take more time.

Investment Sector #3 – The Health Insurance Sector

Another area to avoid is health insurance, and it’s no secret why. I’m not looking forward to whatever Washington has in store for the private health insurance industry. What concerns me most is the level of uncertainty in the current health care debate. Who knows exactly what’s in a 2000-page bill? I doubt most members of Congress have cracked five pages of it.

I currently have stocks like United Health (UNH), Wellpoint (WLP) and Humana (HUM) rated as Holds, and don’t be surprised if they’re downgraded to Sell before the next earnings season begins.

Investment Sector #4 – The Hotel Sector

One final area to avoid is hotel stocks. With the economy still struggling to get back on its feet, both business and recreational travel have been cut back. I have homes in Nevada and Florida, and it’s clear that tourism has taken a hit. Vacancy rates aren’t looking so good. Hotels are a classic cyclical industry, and I have hoteliers like Marriott (MAR) and Choice Hotels (CHH) currently rated as Holds. Only after the job market improves will people starting checking in at their favorite travel destinations.