Jim - Thanks for the compliment. Regarding Fidelity's Selects, there has been very little active commentary over the past few weeks. There are, I believe, a number of reasons for this. The main reason for this, of course, is that there is still a great deal of concern about how the financial crisis in Asia will play out in the weeks and months ahead. As a result, while the latest data is certainly satisfactory enough to produce an upbeat week and a bit more optimism about the future, investors also realize that these numbers have only been affected by the initial, and least onerous, stage of the distressing situations in the Pacific. It seems quite sensible to assume, therefore, that it may be quite some time before we learn the full extent to which the troubles in the Far East have affected the sales and earnings of America's businesses.Over the past three months, these and other similar events have caused markets around the world to continually vacillate between enthusiastic sessions where the averages soar dramatically, and days fraught with anxiety and negative overtones where prices head in the opposite direction. Here at home, this manic-depressive behavior has made it extremely difficult for the broader market measures, or any specific sector of the market, to establish and maintain a steady trend for more than the briefest amount of time. In the eleven weeks since the October 27th selloff, for example, we have consistently seen a good week followed by a bad one, only to be followed by five flat or marginally favorable sessions. The market's activity, it seems, has basically been dictated by short term traders, who take advantage of these brief spurts of activity by quickly locking in their gains and moving on to more fertile ground. Until the long term investor is confident enough to commit funds to the market, therefore, this type of whipsaw price activity appears destined to continue. This has, of course, made things particularly difficult for sector fund investors, who generally prefer to still be holding a fund they have bought by the time the confirmation slip arrives in the mail a few days later.Since late October, this back and forth churning has resulted in relatively minimal progress by the market averages. Investors continue to prefer the safety and liquidity of the largest issues, thus the best gains have been registered by the S & P 500 (+9.6 %) and the Dow Jones Industrials (+4.9%). On the other hand, the Nasdaq 100 has only gained 2.8% over the past eleven trading weeks, the Nasdaq Composite has advanced by 1.8%, and the Russell 2000 has only produced a meager 1.5% gain. During the same stretch of time, only 10 of Fidelity's Select Funds have done better than the S & P 500, and the average Select Fund has produced a negligible gain of 1.7 percent.
The major market averages, unfortunately, keep bouncing back and forth within fairly well-defined trading ranges. On numerous attempts, these indexes have failed to surpass their previous peaks, and as their charts clearly illustrate, are still showing either no progress or a steady loss of relative strength. Even after this past week's rather impressive gains, none of the major averages has even come close to testing, much less breaking through and remaining above, any significant resistance levels. I continue to believe, therefore, that the overall stock market must be viewed with a considerable amount of caution, and we have to be extremely careful when it comes to picking and choosing individual investments under these tenuous circumstances.
For example, although a number of sectors have moved up significantly in the family rankings, the gains that they have made, which have resulted in a distinct improvement in their MR Rankings and positions within the family, are basically being caused by short-term price surges in the middle of some lengthy downtrends.
Psychologically, of course, it is difficult to resist jumping into a fund when it begins to advance smartly. We need to keep in mind, however, that until a fund breaks out of its clearly defined trading range, there will be no evidence that its latest move is anything more than a brief spurt within a declining price pattern. To put it quite simply, just because a fund improves its position, either relative to the remainder of the Select Fund family or the market averages, does not automatically warrant a Buy Signal if it is not substantiated by its technical charts.
Any discussion on these comments would be welcome. Hopefully, this forum will return to a more active level of participation soon, regardless of how few or many Select Fund investments are being made at the time.
Bernie Kaplan |
