The Dow Jones Industrial Average Index cannot Hold the 17,000 Level; Biotech Sector Shows Signs of a Possible Correction; Real Estate Stocks may be Ready for a New Rally

Ahead of the July 4th holiday, the Dow Jones Industrial Average briefly reached the all-time high 17,000 level, but was not able to hold it this week. The chart below shows that the Dow is still in a bullish uptrend, but what makes us concerned is the more severe sell-off in market leading sectors, such as biotechnology.

We are also approaching the seasonally weak fall period. Since many of the infamous stock market crashes occurred between September and November, we caution our readers to be increasingly careful with committing new funds to “risk on” investments.

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The biotech sector has been one of the market leaders in the last 18 months. The chart shows that the sector corrected hard from the March highs in April and May, but was able to rally back in June. The large 3.14% drop of the Fidelity Biotechnology Fund (FBIOX), which is the largest biotechnology fund available to investors, is concerning, because it may signal the start of a market correction.

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While aggressive equity sectors got hit hard today, long-term Treasury bond rates trended lower, which helped interest rate sensitive investments to go higher. One of our current favorites in this space is the Fidelity Real Estate Portfolio Fund (FRESX). FRESX was one of the few Fidelity funds that posted a gain today and we would not be surprised to see FRESX to hold its current bullish trend even if stock market conditions weaken.

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Buy and sell signals for Fidelity funds are available at FidelitySignal.com

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The Stock Market Rotates in Slow Motion; Low Volatility Continues

Our benchmark investment, the Fidelity Spartan 500 Index Fund (FUSEX, last change: 0.15%) was up slightly today and made a new 52-week high. 50% of Fidelity’s sector funds gained today following the index. The other half of the funds pulled back, but the daily moves were small.

The salient feature of the current market environment is its unusually low volatility. The lack of bad news from Europe, the Middle East and Washington combined with the money flow from bonds to stocks and the Fed’s stimulus package make the equity market appear less risky than in previous years. We know from market history that the low volatility will likely end soon, but for now we can all enjoy this uniquely peaceful market.

The sector rotation that often occurs in January has started, however the sectors move up and down at a slow pace. Top investments of 2012, such as biotechnology and international real estate, have retreated slightly (see charts below).

Investment areas with positive momentum include technology, energy services and blue chip stocks. The most out-of-favor sector remains gold mining stocks.

The Fidelity Select Biotechnology Fund (FBIOX, last change: -0.74%) has pulled back slightly from its recent high.

The Fidelity Select Biotechnology Fund (FBIOX, last change: -0.74%) has pulled back slightly from its recent high.

Fidelity International Real Estate Fund (FIREX, last change: -0.21%)

Fidelity International Real Estate Fund (FIREX, last change: -0.21%)

 

Fidelity Blue Chip Growth Fund (FBGRX, last change: 0.43%)

Fidelity Blue Chip Growth Fund (FBGRX, last change: 0.43%)

Fidelity Select Technology Fund (FSPTX, last change: 1.03%)

Fidelity Select Technology Fund (FSPTX, last change: 1.03%)

 

Buy/sell signals for Fidelity funds are available at FidelitySignal.com.