Long-Term Bullish Trend is Intact for U.S. Equities, in spite of Increased Volatility; Gold Forms a Bullish Double-Bottom Chart Pattern; It is Still Early to Invest in the Energy Sector or in International Equities;

It is always good to take a look at long-term trends when short-term volatility increases, in order to have a better sense of the market direction. While the widely anticipated stock market correction remains a possibility, in our view, the long-term bullish trend for U.S. equities is still intact.

The chart shows that the multi-year uptrend for the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) has not yet been interrupted by the recent market volatility:

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In a recent article (see Best Fidelity Mutual Funds for 2015) we highlighted the most attractive investments for 2015. The selected mutual funds have continued to perform well in the last few weeks of trading. Especially, conservative sectors, such as real estate, utilities, medical equipment and consumer staples have outperformed the S&P 500 index:

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Perhaps, the most interesting new development in 2015 is the renewed interest in buying gold mining stocks. The chart of the Fidelity Select Gold Fund (FSAGX) below shows a short-term bullish double bottom pattern and increased buying activity during the first two weeks of the New Year. However, gold has a long way to go before it can establish a long-term uptrend.

While gold is traditionally viewed as an inflation hedge, in the current deflationary environment precious metals are looked at as an alternate asset class that can potentially serve as a volatility hedge. We’d like to caution investors, that while gold can provide returns that have low correlation with equities, this sector is highly speculative and is more appropriate for the purposes of short-term trading than long-term investing.

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As noted in earlier articles, we believe that it is still too early to diversify into the weakest sectors, such as natural resources (in particular energy), and into underperforming international markets.

The blue lines on the charts of the Fidelity Select Energy Fund (FSENX) and the Fidelity Latin America Fund (FLATX) indicate that the bearish downtrends that are still in place:

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Read more about investment strategies involving these funds at FidelitySignal.com

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Stock Market Correction Causes Flight to Safe Investments

As the equity market correction unfolds, the current list of the top 10 Fidelity mutual funds shows a dramatic shift compared to what we have seen throughout the year: seven out of the top ten funds are now income funds.

 

Top 10

One of the most important new developments is that the yield of the 30-year Treasury bond continues in a downtrend causing long-term Treasury bonds to to resume a very strong uptrend:

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The weakest investments that I highlighted in previous blog articles, such as mutual funds investing in the Eurozone and energy, have continued to decline. However, they are so oversold now that it would not be surprising to see a relief rally.

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The market leaders of the last 12 months, including technology and communications sectors, are turning over now, which is a worrisome sign about the short-term prospects of the stock market:

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View investment strategies at FidelitySignal.com

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Market Rotation: the Fidelity Emerging Markets Fund is a Top Choice

Fidelity Emerging Markets Fund (FEMKX, last change: 0.87%)

Emerging markets have underperformed U.S. equity sectors so far in 2013, but should this trend reverse, the Fidelity Emerging Markets Fund (FEMKX, last change: 0.87%) is one of the best ways to participate for investors seeking increased international exposure. The FEMKX chart looks increasingly bullish with today’s breakout from the trading range that started in January.

 

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

Sector Rotation: Fidelity Select Automotive Fund

The Fidelity Select Automotive Fund (FSAVX, last change: 2.09%)

The Fidelity Select Automotive Fund (FSAVX, last change: 2.09%) was the top gainer today in our daily survey of Fidelity mutual funds. FSAVX has reached a new 52-week high and displays a very bullish chart pattern with higher highs and higher lows.

 

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