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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Sector Rotation Intensifies as we Approach the Seasonally Weak April-May Period

“Sell in May and go away” is a well know Wall Street adage that warns investors to sell their equity holdings in May to avoid the seasonal decline of the equity markets. Will the adage prove to be true in 2014? After the outstanding returns of the last 18 months, is the U.S. stock market vulnerable to a serious correction?

We think that the risks for equities have increased and investors should be extremely cautious in this market. As we noted in previous blog articles, the sector rotation has started a week ago and a correction is under way in the previous market-leading sectors, such as biotechnology and gold. At the same time, defensive investments, including utilities and treasury bonds are in favor again. Geopolitical risks may be on the rise, as well, especially if the military conflict in the Ukraine escalates in the coming weeks.

Severe corrections are under way in the biotech and gold sectors:

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At the same time, defensive sectors, such as utilities are gaining favor with investors:

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Source: FidelitySignal.com

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Sector Rotation: Gold and Utilities Stocks are Poised to Advance; Avoid the Telecommunications Sector

Equity markets  sold off this week due to worries about the escalation of the Ukraine situation and the fears about the potential weakening of the Chinese economy.

Few sector funds are making higher highs in this negative market environment of the last few days. We highlight here Fidelity funds corresponding two sectors, gold and utilities, which show the strongest relative strength compared to our benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX).

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Both the price action and the declining relative strength line (the ratio of the investment versus the S&P500 index) shows that the telecommunications sector is one of the weakest equity sectors right now. We would avoid investing in this sector based on current conditions.

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Buy and sell signals are available at FidelitySignal.com

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Overextended Stock Market Sells off Today; Utility Sectors Turn Bearish;

The sell-off for equities was broad based today, which is not surprising in light of the almost uninterrupted advance since the October correction.

One troubling sign, however, is that defensive sectors are impacted as much, or even more so, than the more aggressive growth sectors. For example, telecom and energy utilities are regarded as conservative investments, because they can provide dividend income and stable returns. The two charts below show that the corresponding Fidelity Telecommunications and the Utilities Funds rolled over and entered into a declining phase.

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

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