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

.

Best Fidelity Fund of 2014: Fidelity Real Estate Fund (FRESX)

Oversold stock markets rallied around the world today due to multiple factors, including declining interest rates and reduced geopolitical threats. I’d continue to be very cautious with committing new funds to equity investments until we can see if the rally can sustain itself. With that said, it is worth noting the emerging new trends in the healthcare, retail and the real estate sectors.

As an example, the chart shows that the Fidelity Real Estate Investment Portfolio Fund (FRESX) is turning increasingly bullish. The blue arrow on the chart shows the buy signal that was issued for FRESX by FidelitySignal.com on February 11. FRESX is now the top-performing Fidelity fund of the year based on total return.

View investment strategies and buy/sell signals at FidelitySignal.com

.

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.

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.

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.

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

.

 

 

The Best Fidelity Real Estate Funds for Portfolio Diversification

Recent reports suggested that both mortgage activity and new housing starts are slowing, which may steer cautious investors away from real estate companies that are involved in the residential space. However, real estate stocks can continue to be attractive investments, as long-term interest rates continue to decline:

We highlight here two excellent Fidelity funds that can be used for portfolio diversification. The first is the Fidelity Real Estate Investment Portfolio (FRESX), which invests in large cap real estate companies, such as the Simon Property Group, Public Storage and Ventas. Lower interest rates will help these companies by lowering the borrowing costs for capital-intensive projects and will also make their yield more attractive compared to bonds.

The three-year chart below shows that the net asset value of FRESX peaked out a year ago, which was followed by price consolidation in the second half of 2013. As interest rates started to decline in January, FRESX started a new uptrend and continues to outperform the broad market indexes.

The second fund is the Fidelity Real Estate Income Fund (FRIFX), which we have highlighted before, as one the top income investments for 2014 (see article). FRIFX invests in debt obligations and preferred stock of Real Estate Investment Trusts (REITs) and currently provides an attractive 4.54% yield. The chart pattern is very bullish with FRIFX resuming its uptrend in January that has not been interrupted ever since:

 

Buy and sell signals are available 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.

Sector Rotation: the Banking and the Telecommunications Sectors are the Top Performers Today; Real Estate and Gold Stocks are in Correction

Markets rallied today due to positive economic data following the sell off yesterday that was triggered by Chairwoman Yellen signaling the possible end of the Federal Reserve’s Quantitative Easing program this year, which may be followed by interest rate increases next year.

The Fidelity Select Banking Fund (FSRBX) was the top performer today. The FSRBX chart shows the continuation of the multi-year bull market.

The Fidelity Select Telecommunications Fund (FSTCX) was the second best performer. The improving economy and innovative new cellphone and service technologies can become catalysts for this sector, which has underperformed the market since last October:

The Fidelity Real Estate Fund (FRESX) did not participate in the rally in a meaningful way today. The chart shows that after making impressive gains in 2014, FRESX is in a correction mode now. We continue to like real estate investments, since the improving economy should continue to be positive for both commercial and residential companies in this space.

While 80% of Fidelity’s Select sector funds gained today, the Fidelity Select Gold Fund (FSAGX) was one of the weakest Fidelity funds. Similarly to real estate, gold stocks had a strong run up in the last few months and now in correction mode. However, unlike real estate, we regard gold and related investment as purely speculative. On the plus side, FSAGX can be used to increase diversification and to hedge against geopolitical events.

Source: FidelitySignal.com

.

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.

 

Stock Market Correction Leads to Sell-Off for Real Estate Stocks

The Fidelity Real Estate Investment Fund (FRESX, last change: -1.94%) is the weakest performer in our survey of Fidelity mutual funds. FRESX lost 14.1% in the last three months. While a snap-back rally can occur at this oversold level, investors are best served by continuing to avoid this sector.

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

Top 10 Fidelity Sector Funds For The Summer Rally

Fed chairman Bernanke’s comment last week stating that the Fed’s policy will be highly accommodative for the foreseeable future led to an across-the-board rally for the U.S. stock market. The market looks decidedly bullish, with many sectors breaking out to new highs.

On the other hand, we are in the middle of the earnings season, which is often associated with increased volatility. Given the current market environment, what are the best investment choices for Fidelity investors?

To answer this question, first lets look at the data. The table below shows the ranked list of the top 10 Fidelity mutual funds based on three-month return, a measure of price momentum.

Top 10 Fidelity Mutual Funds

Source: FidelitySignal.com

Surprisingly, all of the Fidelity funds on the top 10 list are sector funds. This is highly unusual. Even a few months ago, we would have seen international funds (e.g. Japanese funds) or other investment choices on this list. Even beaten down sector funds, such as the Fidelity Real Estate Investment Fund (FRESX), are now turning bullish. Consequently, the data tells us that smart money is on U.S. sector investments right now.

The second observation is that the list of top Fidelity funds is highly diversified. In addition, all of the ten funds have returned more than 10% in the last three months, in spite of the recent market correction.

The current leaders are the Fidelity Select Automotive (FSAVX), the Fidelity Select Biotechnology (FBIOX) and the Fidelity Select Banking (FSRBX) funds. In addition, it is important to note that four out of the ten funds are related to the finance sector.

Companies investing in the consumer sector are also bullish. The best fund to play this trend is the Fidelity Select Retailing (FSRPX) fund.

For investors who are looking for emerging trends in technology, the Fidelity Select Software and Computers (FSCSX), the Fidelity Select IT Services (FBSOX) and the Fidelity Select Electronics (FSELX) funds offer new opportunities.

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