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:


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:





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.


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:



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


Sector Rotation: Electronics, Medical Equipment and Real Estate Funds are Top Performers

The S&P 500 index has reached an all time high again, as the bull market resumed after a brief correction in March. The top 10 Fidelity mutual funds in the current market environment show representation from multiple industries and this broad-based advance is considered a bullish sign for the overall market.

We’d like to highlight three Fidelity funds here, the Fidelity Select Electronics (FSELX), the Fidelity Select Medical Equipment (FSMEX) and the Fidelity Real Estate Portfolio (FRESX) funds. These funds stand out, because their respective sectors are well positioned to lead the market advance.




Real Estate Continues to Outperform the Market in 2014

In previous articles we highlighted the real estate sector as one of the most exciting investment areas for 2014. A large increase of home sales sent homebuilding stocks higher yesterday. As the result, the Fidelity Select Construction and Housing Fund (FSHOX) gained 1.87% and was the best performing Fidelity fund of the day. The blue line on the chart shows that the relative strength of FSHOX (the ratio of the price of the fund versus the S&P 500 index) continues to improve:


We also made a bullish call for the Fidelity Real Estate Income Fund (FRIFX) on the first trading day of January (see article) and the chart shows that FRIFX has indeed performed well so far this year. FRIFX is an excellent income fund that provides a respectable 4.72% yield (source: Morningstar) and the potential for price appreciation:


The Fidelity Real Estate Fund (FRESX) holds large cap stocks in the space. The chart pattern shows a bullish breakout that started in January:


The improving U.S. economy can continue to lift the real estate sector higher this year, but investments in this sector can also be highly volatile. That is why diversification across of different types of real estate investments is key (see the real estate model portfolio at FidelitySignal):




Real Estate Stocks Roll Over

One of the weakest sectors of the stock market is real estate, according to the ETFnext.com economic cycle indicator.

Not surprising that the Fidelity Real Estate Portfolio Fund (FRESX) shows a weakening chart pattern. FRESX has moved below its 100 day moving average, which is another bearish sign. While it is possible for real estate stocks to bounce back to the top of the trading range, we would look for growth somewhere else in the coming weeks.