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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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:

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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:

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The Fidelity Real Estate Fund (FRESX) holds large cap stocks in the space. The chart pattern shows a bullish breakout that started in January:

fresx

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):

realestate

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Sector Rotation: Real Estate, Healthcare, Technology and Gold Funds are Emerging as the Strongest Investments in the Current Market Environment

While the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX), which is Fidelity’s S&P 500 index fund, barely moved higher today, multiple sector funds continue to show increased relative strength and may become promising equity investments for the next weeks or months. The first chart shows that FUSEX bounced off of the blue support line following the January market sell off and just barely holding above the 100-day moving average:

fusex

The next chart shows that Fidelity Real Estate Fund (FRESX) is one of the most interesting opportunities to watch for in the next few weeks. The top part of the chart displays the relative strength, which is the ratio of FRESX versus the S&P 500 index. The blue arrow indicates that the relative strength is improving for this sector starting from the beginning of January. Indeed, FRESX did not correct as much as FUSEX in the recent sell off and has already broken out to a new high for the year. The 1-year chart also shows that FRESX has not yet established a clear bullish trend, but the price action is promising.

fresx

The long-term picture for the technology and healthcare sectors is very different from real estate, as these large sectors have performed very well last year, but did not correct hard in January, and their relative performance compared to the broad market indexes continue to improve. Fidelity has multiple select funds for both of these sectors. We show here two examples of health care funds (FSPHX and FSMEX), which continue to provide excellent returns:

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The following two charts show examples of two Fidelity technology funds (FSELX and FSPTX) with increasing relative strength and promising outlook:

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One of the most interesting recent developments has been the strong rally of gold mining stocks. As the result, the Fidelity Select Gold Fund (FSAGX) has gained 11.74% already this year.  The five year chart below shows that FSAGX reached its peak in 2011, but dropped in the following year and a half by almost 68% to reach the most recent low in last December. The blue downtrend line appears to be broken now, but since the gold mining sector can be highly volatile, investors should be very cautious with taking large positions in this sector until a clear uptrend gets established. For example, in the second half of 2012 gold made a similar bullish move, but resumed its bear market for another year:

fsagx

Source: FidelitySignal.com

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S&P 500 Index Gets Oversold Bounce; Consumer Staples and Energy Services Sectors Lag the Most

The stock market started February under selling pressure after a weak January performance, which created a short-term oversold condition. Stocks found support on Tuesday and Wednesday, and rebounded on Thursday and Friday. The chart shows that the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX)  bounced back from the blue short-term support line.

fusex
The two weakest sector funds are the Fidelity Select Consumer Staples (FDFAX) and the Fidelity Select Energy Services (FSESX) funds. The top portions of the charts show the relative strength of these funds compared to the S&P 500 index. The blue arrow denotes that the relative strength of FDFAX started to decline in April of 2013 and continues to weaken this year.

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Source: FidelitySignal.com

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The Global Equity Sell-off Resumes in February; Treasury Bonds Rise; Utilities are Holding in Bull Market

The stock market sold off today with an accelerated pace in part due to the weak PMI number from China. The benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) crossed below its 100-day moving average, which is considered a bearish sign:

fusex

The weakest equity sector was the financials. The Fidelity Select Brokerage Fund (FSLBX) was down the most with a -3.52% loss for the day:

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The weakest Fidelity international equity fund was the Latin America Fund (FLATX) with a -3.42% loss. Equity markets in Latin America have experienced a tremendous bear market for more than a year now and are severely oversold. We expect a relief rally to happen in the near future.

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Long-term yields continued to decline and investors bid up bonds in a flight to quality. As the result, the Fidelity Spartan Long-Term Treasury Bond Fund (FLBIX) gained 1.12% today:

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One of the few sectors that still remain in a bull market is utility stocks, which are considered defensive investments. The Fidelity Select Utilities Fund (FSUTX) lost -1.27% today, but the chart shows that the bullish uptrend for FSUTX has not been interrupted yet:

fsutx

Source: FidelitySignal.com

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International Markets: Fidelity Japan Small Companies Fund as a Diversification Play in 2014

The Fidelity Japan Small Companies Fund (FJSCX) was the best performing Fidelity mutual fund in the first part of 2013, but corrected in May and consequently entered into a long consolidation phase. However, FJSCX is starting to show increased relative strength again compared to other mutual funds investing in international markets.

The 1-year FJSCX chart below shows a “pinched” triangle pattern, which will most likely resolve into a decisive breakout or breakdown in the next few weeks. Since Japanese equities are regarded as one of the least correlated markets compared to the S&P 500 index, building a position in FJSCX, should the breakout get under way, can be a good way to diversify in 2014.

fjscx

Source: FidelitySignal.com

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Best Fidelity Funds for 2014 – Part 5: International Diversification (final part)

In the previous parts of the series we highlighted a handful of excellent Fidelity mutual funds that allow investors to build up core positions representing small cap stocks (see article), value investments (see article) and corporate bonds (see article), assuming that the current economic and market trends continue in 2014.

We also highlighted gold, as a potential contrarian investment (see article). While gold did not hold its recent support level and continues its downtrend, we expect that the gold mining sector will bottom in the first half of 2014 and may become an attractive investment again.

Today, let’s take a look at international investments, which can be used to diversify U.S. equity holdings in your portfolio. International equity markets have underperformed U.S. equities in 2013, but this may change in 2014. Currently Europe is the strongest with Nordic economies leading the way, but even a the weaker economies, such as Spain, Italy, Greece and Poland are expected to do well next year.

The weakest international investments in 2013 have been mutual funds investing in Latin America. The boom-bust market cycles are not unusual in that part of the world going back to the 1980, when these markets first became accessible to foreign investors. We regard funds focusing on Latin America as contrarian investment opportunities for 2014 with great potential to produce gains once the world economy starts growing again.

Thirdly, Asian investments have produced mixed results in 2014. Japanese equities were very strong in the first part of the year due to their weak yen policy, but rolled over and now in a broad trading range. Many investors and commentators cheered the recently introduced economic reforms in China. We are keeping a close eye on investing opportunities not only in China, but also in India and fast growing South Korea. Unique opportunities may also present themselves in the so-called “frontier” markets, such as Vietnam.

Fidelity has many excellent international mutual funds, but the one that stands out, as a great tool to diversify core holdings is the Fidelity Diversified International Fund (FDIVX). The chart below shows that its management team has been highly successful in identifying the right investments and generate an outstanding 22% return for shareholders so far in 2013.

fdivx

We all hope that 2014 will be as strong, as 2013 has been. In reality, financial markets seldom advance without any interruption.  Our previous study showed that U.S. equities are overbought by historic standards and now ripe for a correction (see article). That is why we suggest our readers to review the model portfolios at FidelitySignal.com, which provide buy and sell signals, and E-mail alerts for specific Fidelity mutual funds.

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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.

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

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Best Fidelity Funds for 2014 – Part 3: Value Investing

High-flying stock market sectors have received a lot of news media attention this year, since the top sectors have produced outsized returns. For example, the Fidelity Select Biotechnology Fund (FBIOX) has gained 62.54% so far in 2013.

Will this performance continue in 2014? History of the stock market tells us that it is unlikely. In fact, we have to go back to 1999 to see similar returns. And we all know what happened in the aftermath of the speculative stock market bubble in 2000.

Looking ahead to 2014 most economist draw a picture of continued economic growth in the U.S. The problem is that this can lead to an early decision by the Fed to taper the QE3 program, which will likely to have a cooling effect on equity markets.

As we consider the best investments for 2014, it is worth taking a closer look at value investing again. Value investing is a risk-averse approach for investors who would like to participate in the equity markets, but are worried about the potential of a large stock market correction in 2014.

Our favorite investment in this space is the Fidelity Value Fund (FDVLX). FDVLX has returned 36.85% since November 30, 2012, when FidelitySignal.com issued the buy signal. The chart below shows that FDVLX has been a solid investment in 2013 and the bullish trend continues to stay uninterrupted.

fdvlx

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

Sector Rotation: Fidelity Select Health Care Fund

Fidelity Select Health Care Fund (FSPHX, last change: 1.12%)

The Fidelity Select Health Care Fund (FSPHX, last change: 1.12%) is one of the strongest performing Fidelity funds in August. FSHPX is now ranked amongst the top 10 Fidelity funds by FidelitySignal.com.

 

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