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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S&P 500 Index Gets Oversold Bounce; Consumer Staples and Energy Services Sectors Lag the Most

The stock market started February under selling pressure after a weak January performance, which created a short-term oversold condition. Stocks found support on Tuesday and Wednesday, and rebounded on Thursday and Friday. The chart shows that the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX)  bounced back from the blue short-term support line.

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The two weakest sector funds are the Fidelity Select Consumer Staples (FDFAX) and the Fidelity Select Energy Services (FSESX) funds. The top portions of the charts show the relative strength of these funds compared to the S&P 500 index. The blue arrow denotes that the relative strength of FDFAX started to decline in April of 2013 and continues to weaken this year.

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Source: FidelitySignal.com

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Large Price Drop of Fidelity Select Sector Funds is due to Capital Gains Distribution

The large price drop of several Fidelity mutual funds may have alarmed investors today. But it turns out that there is no reason to panic. The drop in the net asset value (NAV) of these funds was due to the annual distribution of capital gains, and also to a smaller extent, dividends.

Looking on the bright side, large distributions are reflective of large gains in 2013. Indeed, 2013 has been an exceptionally strong year for equities. Unless we experience an unexpected sell-off in the last 11 days of the year, 2013 will become the best year in equities, since 1999. Of course, this makes many investors fearful of downside volatility in 2014. But for now, lets focus our attention on closing the year, especially if it involves mutual fund investments that have produced excellent gains for investors.

So, lets take a look at examples of Fidelity funds with large price drops that are due to capital gains distributions:

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More information:

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