Top Sectors are Overbought, a Sell-Off is Likely

2018 started on a good note for equity investors. After the first few days of trading, the Nasdaq index moved above the 7,000 level, while the Dow Jones Industrial Average surpassed the psychologically important 25,000 level.

The market rally is broad-based, which allows investors to diversify across of multiple sectors. Looking at the three-month total returns, the energy, the natural resources and the retailing sectors lead the market right now:

Top_sectors

However, as shown on the chart of the Fidelity Select Energy Fund (FSENX), the RSI indicator signals an overbought condition, which is often followed by a sell-off:

fsenx

We think that instead of chasing the current market leaders, investors may consider overweighting the financials sector. One of our favorite funds in this space if the Fidelity Select Financial Services Fund (FIDSX). The price consolidated in December, but the long-term uptrend was not interrupted. FIDSX is now showing signs of starting a new upleg, which we think can provide an optimal entry point for overweighting an existing position or starting a new position in this sector:

fidsx.png

View fund ratings at FidelitySectorReport.com for more information.

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One thought on “Top Sectors are Overbought, a Sell-Off is Likely

  1. Pingback: Stock Market Sell-off is Caused by Rising Interest Rates; Cyclicals, Financials and Industrials Remain the Strongest Sectors; Treasury Bond Funds Underperform | Fidelity Trends

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