The technology sector was the strongest performing sector for 12 month, but a correction started in early June due to questions about high valuations for Apple and other large-cap technology companies. As a result, the technology-focused Nasdaq 100 index is underperforming the broad market now:
The key question is whether investors will eventually step in to buy the dips, or not. While it is difficult to predict how the correction in technology stocks will end, in out view, staying with the strongest sub-sectors can help limit losses, while providing an opportunity to participate in the next rally.
To compare the relative strength of the six technology funds available from Fidelity, we used the momentum screen provided by Fidelity Sector Report. The fund with the strongest momentum and the most bullish chart is the Fidelity Select IT Services Fund (FBSOX):
We also like the Fidelity Select Technology (FSPTX) and the Fidelity Select Software & IT Services (FSCSX) funds.
The weakest technology sub-sector is semiconductors by consistently underperforming the Nasdaq 100 index this year. The chart below shows that the Fidelity Select Semiconductors Fund (FSELX) has a negative chart pattern and is not likely to lead the next technology rally: