Stock Market is at All Time High Again; New Investment Opportunities Emerge

The chart of the Fidelity Spartan U.S. Equity Index Fund (FUSEX) shows that U.S. equities broke out from a volatile trading range that started in early December of last year. At the same time, the yield of Treasury bonds reversed course, which caused the Spartan Long-Term Treasury Bond Fund (FLBIX) to correct:

Mutual funds investing in the leading sectors have continued to advance this year, but may be ripe for a pullback now to their respective moving averages (blue lines on the charts):

 

As the equity market has turned more bullish again, sector rotation has intensified, as well. This is good news for investors, since new investment opportunities are emerging. One example is the Fidelity Select Materials Fund (FSDPX):

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

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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

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The Defense Sector Lags the Market

The earnings season often brings volatility for equities, but this summer the bullish trend stayed uninterrupted for the S&P 500 index. The benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) has gained an impressive 5.85% return in the last three months:

The Fidelity Select Defense/Aerospace Fund (FSDAX) is the weakest performing Fidelity fund with a -2.63% year-to-date return. The chart below shows that the relative strength of this sector has been declining since the January correction. The chart pattern is negative, as well. We would avoid investing in this sector until FSDAX regains its momentum and moves above the 100-day moving average line.

Sector Rotation: Real Estate, Healthcare, Technology and Gold Funds are Emerging as the Strongest Investments in the Current Market Environment

While the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX), which is Fidelity’s S&P 500 index fund, barely moved higher today, multiple sector funds continue to show increased relative strength and may become promising equity investments for the next weeks or months. The first chart shows that FUSEX bounced off of the blue support line following the January market sell off and just barely holding above the 100-day moving average:

The next chart shows that Fidelity Real Estate Fund (FRESX) is one of the most interesting opportunities to watch for in the next few weeks. The top part of the chart displays the relative strength, which is the ratio of FRESX versus the S&P 500 index. The blue arrow indicates that the relative strength is improving for this sector starting from the beginning of January. Indeed, FRESX did not correct as much as FUSEX in the recent sell off and has already broken out to a new high for the year. The 1-year chart also shows that FRESX has not yet established a clear bullish trend, but the price action is promising.

The long-term picture for the technology and healthcare sectors is very different from real estate, as these large sectors have performed very well last year, but did not correct hard in January, and their relative performance compared to the broad market indexes continue to improve. Fidelity has multiple select funds for both of these sectors. We show here two examples of health care funds (FSPHX and FSMEX), which continue to provide excellent returns:

The following two charts show examples of two Fidelity technology funds (FSELX and FSPTX) with increasing relative strength and promising outlook:

One of the most interesting recent developments has been the strong rally of gold mining stocks. As the result, the Fidelity Select Gold Fund (FSAGX) has gained 11.74% already this year.  The five year chart below shows that FSAGX reached its peak in 2011, but dropped in the following year and a half by almost 68% to reach the most recent low in last December. The blue downtrend line appears to be broken now, but since the gold mining sector can be highly volatile, investors should be very cautious with taking large positions in this sector until a clear uptrend gets established. For example, in the second half of 2012 gold made a similar bullish move, but resumed its bear market for another year:

Source: FidelitySignal.com

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The Global Equity Sell-off Resumes in February; Treasury Bonds Rise; Utilities are Holding in Bull Market

The stock market sold off today with an accelerated pace in part due to the weak PMI number from China. The benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) crossed below its 100-day moving average, which is considered a bearish sign:

The weakest equity sector was the financials. The Fidelity Select Brokerage Fund (FSLBX) was down the most with a -3.52% loss for the day:

The weakest Fidelity international equity fund was the Latin America Fund (FLATX) with a -3.42% loss. Equity markets in Latin America have experienced a tremendous bear market for more than a year now and are severely oversold. We expect a relief rally to happen in the near future.

Long-term yields continued to decline and investors bid up bonds in a flight to quality. As the result, the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX) gained 1.12% today:

One of the few sectors that still remain in a bull market is utility stocks, which are considered defensive investments. The Fidelity Select Utilities Fund (FSUTX) lost -1.27% today, but the chart shows that the bullish uptrend for FSUTX has not been interrupted yet:

Source: FidelitySignal.com

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Stock Market at All Time High Again

Both the Dow Industrial  and the S&P 500 indexes are in uncharted territory again. Fidelity’s Spartan U.S. Equity Index Fund (FUSEX) has been one of the best ways to participate in the bull market for stocks in 2013.

 

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