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Strategies & Market Trends : Fidelity Select Sector funds -- Ignore unavailable to you. Want to Upgrade?

To: Dennis who wrote (723)	3/14/1998 10:49:00 AM
From: LWolf	Read Replies (3) \| Respond to of 4916

Dennis.... I agree, whipsaws and penalties .... short timeframes really mess up the profits IMO.... It would be better if there was a way to identify 90 day minimums for segments. If the broader trends could be capitalized on, it seems it could be more profitable. Another idea would be to balance a few segments based on rotation concepts. Laura

To: Dennis who wrote (723)	3/14/1998 1:11:00 PM
From: Bernie Kaplan	Respond to of 4916

The debate about Fidelity's 3/4% short term redemption fee is apparently going to rage on forever, but let's go over a few important points. First, when any technically derived buy signal is generated, it is the market's subsequent attitude towards this sector that is going to determine whether it continues to go up, reverses course with or without reason, as well as how far and fast it will travel in either direction. For example, if the Utilities and Electronics funds generated buy signals on the same day, I would bet anything that you would say that Electronics would be the best bet, based on its history. This does not, obviously, have to turn out to be the case, since unpredictable factors can alter the direction of any fund's current trend, and even the most sedate sectors can perform better than the traditionally explosive ones. Any time a fund does not respond as anticipated or desired, after it has moved into buy territory, a decision has to made as to whether it is better to maintain the position, not only in hopes of a recovery, but until the 30 day period has passed to avoid the 3/4% fee. The primary consideration, in a trading strategy that is founded on moving ones money from weakening sectors into strengthening ones, is that even if one must sell a fund before the 30 day period, it is done so with the expectation that the new sector that the money is going into will rise fast enough to more than compensate for the fee. From the viewpoint of technical analysis, funds that have begun to decline faster than anticipated will often drop below significant support levels. At that point, regardless of how long the position has been held, a chartist must liquidate the position. Try to remember that there will be winners and losers when trading sector funds, but you must stick with a disciplined system that gets you into a fund when the indicators are right, and also gets you out of it when things do not go the way you had planned. Even if the position results in a loss, if you have stuck to a proven system on both ends of the trade, it is still a good trade. If you prefer to take a longer term approach with the sectors, each fund must then be rated over a more extended time period to determine the credibility and sustainability of its current trend. At the same time, you want to invest in sectors that not only will remain in stable uptrends, but which will outperform the S & P 500, for example, over a reasonably long time frame. If you choose to use longer parameters as a means of judging the most suitable funds for this approach, the fact that you insist on holding the fund for a minimum amount of time may necessitate you to endure much larger intermediate drawdowns than a trader would. As with most investment topics, it is a subjective decision to a great extent. The greatest challenge is to differentiate between fast moves and swift gains in momentum that are caused solely by short term traders, and trends that will endure because the longer term investor has joined in and begun to invest his or her money. If we could figure out this problem the majority of the time, we could avoid technically solid buy signals that soon whipsaw us into losses, such as some of this year's gyrations in the Energy Service sector. Currently, I, along with a number of colleagues of mine who employ sophisticated technical analysis, are doing extensive studies to see if the above described problem can be partially or totally solved. I hope this message, and some of my other comments on the subject on my web page give you some food for thought. Best to all, Bernie Kaplan www.sectorfunds.com