Best Fidelity Funds for 2014 – Part 4: Small Cap Stocks

Economists expect an improving U.S. economy in 2014. Historically, small capitalization companies outperform the broad market averages in the expansionary phase of the economic cycle, simply because they can grow their businesses faster than large companies in defensive sectors, such as utilities.

Our favorite investment in this space is the Fidelity Low-Priced Stock Fund (FLPSX). FLPSX has returned 37.10% since November 26, 2012, when FidelitySignal.com issued the buy signal.

FLPSX has a truly outstanding long-term track record since its inception in 1989 with an average annual total return of 14.55%. Not surprising that Morningstar rates it five out of five stars. FLPSX normally holds at least 80% of assets in stocks priced at or below $35 per share, which typically includes small to medium-sized companies.

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

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U.S. Equities are in Overbought Territory and Vulnerable to a Large Correction

U.S. equities have been making new highs almost daily and 2013 is clearly shaping up as one of the strongest bull markets of recent market history. But how dangerous is this market for investors looking to commit new capital?

The chart below shows the 15-year performance of the Fidelity Spartan U.S. Equity Index Fund (FUSEX) using monthly bars. This long-term chart shows that the great bull market of 2013 is still intact and has advanced without any serious interruption since December 2012.

However, a closer look at the RSI indicator (a technical indicator that measures overbought/oversold conditions) on the top of the chart shows an overbought condition. While the bull market can continue its positive momentum for weeks or months, U.S. equities are increasingly vulnerable to a serious correction or even a crash.

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

Best Fidelity Mutual Fund of 2013: Select Biotechnology Fund

The S&P 500 index closed above 1,800 for the first time. The Dow also made a new high today, indicating a very bullish stock market.

The biggest gainer today was the biotechnology sector. The Fidelity Select Biotechnology Fund (FBIOX) was up 3.15% and continues to be the best performer of 2013 with an incredible 60.05% year-to-date gain. FBIOX shows a highly bullish chart pattern, since it broke through the blue resistance line.

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

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.

 

Top 7 Fidelity Select Funds for Sector Rotation Strategies

The stock market reacted positively to a better-than-expected job report today with all major indexes closing higher. The rally came as a relief after days of selling in both global and U.S. markets.

The market leading investments for the first six months of 2013 were Japanese stocks and the U.S. biotechnology sector. Now, as the summer gets under way, new sectors are emerging with the potential to take over market leadership.

The newly emerging sectors with increasing momentum include the automotive, health care, brokerage, defense, insurance, retailing and consumer discretionary sectors. We’ll be tracking the corresponding Fidelity Select funds closely for the next few weeks for early signs of the summer rally.

The Top 7 Fidelity Select funds with market leading momentum to be considered for sector rotation strategies are:

Fidelity Select Automotive Fund (FSAVX, last change: 2.00%)

Fidelity Select Health Care Fund (FSPHX, last change: 1.38%)

Fidelity Select Brokerage and Investment Fund (FSLBX, last change: 2.23%)

Fidelity Select Defense and Aerospace Fund (FSDAX, last change: 1.38%)

Fidelity Select Insurance Fund (FSPCX, last change: 1.56%)

Fidelity Select Retailing Fund (FSRPX, last change: 1.74%)

Fidelity Select Consumer Discretionary Fund (FSCPX, last change: 1.71%)

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

The market is at the cross-roads

The U.S. stock market indeces bounced back from their support level in the last few trading sessions, however the momentum is not very strong and the volume is light. The overall trend continues to be bearish until FUSEX moves above the trendline.

The Fidelity Spartan 500 Index fund (FUSEX).

As gold moving higher again reversing its recent pullback, gold stocks moved up to their resistance level. A breakout on high volume from this level would be considered very bullish.

The Fidelity Select Gold fund (FSAGX) has approached the top of its trading range.

The panic of 2011

In our blog post three days ago we said that we wouldn’t be surprised to see the selling continued. On Thursday and Friday the stock market sold off on higher than average volume. Unfortunately, the stock market is increasingly in a panic mode with brokers reporting a spike in trading volume, as individual investors sell their stocks.

The good news is that the Fidelity Spartan 500 Index fund (FUSEX) is near its support level. If the support holds, the market can bounce back from here next week. If the support doesn’t hold, renewed selling can ensue and the panic can accelerate.

The Fidelity Spartan 500 Index fund (FUSEX) is near the support level.