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In Sector Funds, Transportation Is Hot, Energy Not

04/14/10 02:52:30 PM
by Donald W. Pendergast, Jr.

With the broad US markets likely getting close to an interim (maybe even major) cycle top, here's a look at the strongest and weakest funds in the Fidelity Select Sector mutual funds complex.

Security:   FSRFX, FSENX
Position:   N/A

The top five slots are now occupied by the Transportation (FSRFX), Air Transportation (FSAIX), Banking (FSRBX), Multimedia (FBMPX), and Home Finance (FSVLX) funds, and all have very strong weighted ranking scores, with FSRFX and FSAIX outperforming the other funds by a noticeable amount. Strong trends can keep going for as long as new buying power can be tapped, but with the broad markets up by such a dramatic amount since last spring, any investor long FSRFX or FSAIX ought to be thinking about running a closer stop, if not already planning to take some profits off of the table. Both funds are way above their respective 34-week simple moving averages, yet another warning sign that a reversal/correction may be dead ahead. Look at the weakest five funds (Figure 1):

FIGURE 1: FIDELITY TOP FIVE. The top five Fidelity Select Sector funds as based on a weighted performance ranking.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
The lowest five slots are held down by four energy-related funds (FSUTX, FSENX, FSESX, FSNGX) and the Environmental fund, FSLEX. All of the bottom five funds are up over the past year, but they greatly lag behind the other 35 Fidelity Select Sector funds that I track. At some point, the entire energy group will rebound, offering patient investors and traders more opportunities for profit, but for now there seems little incentive to put money to work in this sector of the stock market. If the anticipated reversal/correction in the Standard & Poor's 500 gets underway soon, keep an eye on the behavior of the energy group; sometimes it closely tracks the broad indexes but at other times it carves out its own pathway, seemingly immune to sharp corrective moves. With the US Dollar Index now in a confirmed correction of some degree, crude oil prices may drift a bit lower, affecting the bottom line of major oil companies and their respective share prices. See Figure 2.

FIGURE 2: FIDELITY BOTTOM FIVE. The bottom five Fidelity Select Sector funds as based on a weighted performance ranking.
Graphic provided by: MetaStock.
Graphic provided by: MetaStock Explorer.
 
Figure 3 is the chart of the Transportation sector fund (FSRFX); I don't know about you, but it looks like anyone still wanting to get a piece of this equity action has already missed the train. It might be best to wait for a correction back to support somewhere between the 34 simple moving average (about $39.60 right now) and that last swing low at $37.26.

FIGURE 3: FSRFX, WEEKLY. Here's the weekly chart for the top-ranked fund. While it may very well continue to rise, it might be prudent to wait for a pullback to solid support rather than trying to go long right now.
Graphic provided by: MetaStock.
Graphic provided by: CS Scientific expert from MetaStock v. 11.
 
With the rapid proliferation of exchange traded funds over the past 10 to 15 years, sector mutual funds aren't as attractive as they once were, but they still offer patient daily and weekly traders and investors a suitable, highly focused financial vehicle into which to deploy their capital. By tracking the shifts in sector fund relative strength, traders and investors can keep abreast of the best funds in which to seek capital gains.



Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address: lineartradingsys@gmail.com

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