Ever since stocks began advancing again in March 2009, one of the strongest sectors has been technology. With the rally moving into its 10th month, that situation remains the same. So as we begin to ease back into the markets, it only makes sense that we should consider the technology arena.

This week in Strategis Financial Group’s Foundation Strategy, we took a small position in Fidelity Select Software & Computers (FSCSX). The chart below shows performance of this fund over the past year. (This is not a recommendation to buy. Whether or not you should consider this fund for your portfolio depends on you specific investment objectives and risk tolerance.)

We chose this position because of its solid track record and because it is less volatile than many other technology fund alternatives.

The gold line on the chart is a 50-day simple moving average (MA) of the fund price. Notice that the fund moved above its MA in March and has trended above that line ever since. The 50-day MA is a simple and good indicator to identify funds that are in a strong upward trend. A fund that is trending above its 50-day MA can be considered for purchase.

The middle portion of the chart is a relative strength index (RSI). This is another simple indicator of a fund’s momentum and strength. A fund that is trending above 50 RSI has strength and momentum to continue advancing.

Finally, the bottom portion of the chart is a stochastic oscillator. This tool is used to help identify overbought or oversold fund conditions. In other words, a stochastic oscillator can help determine an investment’s turning points. When the oscillator gets above 80, there is a high likelihood that the fund will soon turn down. Conversely, when the oscillator drops below 20, a fund is likely to turn upward.

As you can see on the chart above, these indicators are all showing that the next likely move for this fund is up and it in fact gained almost 1% on Wednesday.

Major indices like the Dow, the S&P 500 and the Nasdaq have advanced in recent sessions, but those moves appear labored and at risk of a break down. By careful selection of positions in the stronger market sectors, we attempt to mitigate some of the overall market risk while still participating in the advance.

Another industry sector that has shown good strength is health care. We also recently took a small position in health care in the Foundation Strategy.

We remain cautious about the overall market at this time; however, as the advance continues, it makes sense to carefully select positions that allow us to participate.

Obviously this week’s financial news has been overshadowed by the devastating earthquake in Haiti. My son is currently in the Dominican Republic—away from the danger zone but still close enough to spark some parental concerns.

These kinds of events help all of us realize that while we worry about things like our pensions and investment accounts, all that we plan for and care about can be wiped out in an instant. We are truly blessed and fortunate to live in this great country. Please keep those less fortunate in your thoughts and prayers at this time.
F.S.