Equity Markets Rally on the Announcement of the Fed’s QE3 Tapering Decision; Higher Yields Cause Treasury Bonds to Continue Bear Market

Well, it finally happened. The Fed announced today that it will start reducing its Quantitative Easing (QE3) program by tapering the bond purchases from $85 to $75 billion a month, starting in January 2014. The Fed also reassured investors that it will keep interest rates low for the foreseeable future.

The stock market reacted positively: the Fidelity Spartan 500 Index Fund made a new all-time high today and almost all equity funds closed up. The notable exception is the gold mining sector that continues its bear market.

The announcement pushed the yield on the 10–year treasuries higher, which in turn caused the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX) to go lower. We would continue to avoid investing in FLBIX until this long-term trend reverses.

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

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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 

Panic selling continues

The stock market has dropped in panic selling in the last two days and is approaching the support level (see FUSEX chart below). Our best hope is that short sellers will cover their positions ahead of the weekend, which will lead the market higher while reinforcing the support level.

Fidelity Spartan 500 Index fund (FUSEX, change: -3.18%)

The selling of equities today was ferocious, reminiscent of the worst days of 2008.  Energy services stocks got hit especially hard (see FSESX below). This was part of the global sell-off of commodity-related investments (see FFGCX below).

Fidelity Select Energy Services fund (FSESX, change: -6.92%)

Fidelity Global Commodity Stock fund (FFGCX, change: -6.46%)

Mutual fund screens are provided by FidelitySignal.com

Money flow: Where is the bull market now?

While the stock market selling continues, the bull market in treasury bonds accelerates.

The Fidelity Spartan Long-term Treasury Bond Index fund (FLBAX) closed up 2.67%

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.

Stocks drop again, but there is a silver lining

Three days ago we cautioned investors about the continued bearish outlook for the stock market. Today, negative economic reports and renewed worries about the European debt crisis triggered another sell-off globally. We wouldn’t be surprised to see the selling to continue.

The Fidelity Spartan 500 Index fund (FUSEX) dropped 4.44% today.

The silver lining is that the U.S. stock market has not yet broken below the recent lows, which can act as a support level. Furthermore, there are still a few areas where gains have been made. For example, investors continued to rotate into the safety of U.S. treasury bonds resulting in a 1.68% gain by the Fidelity Spartan Long-Term Treasury Bond Index fund (FLBAX).

The Fidelity Spartan Long-Term Treasury Bond Index fund (FLBAX) gained 1.68% as investors continue to rotate into the safety of U.S. treasury bonds.