Communication Services have not gone down without a fight. The sector has recaptured the pre-COVID highs to the upside, although it hasn’t been enough for the trend to turn bullish just yet. Relative to the S&P 500, the group is showing early signs of improvement with a relative breakout. Breadth has received a rare upside boost in yesterday’s trading session, potentially providing the fuel for an attack on the 50-day moving average from below.
S&P 500 Communication Services
The Communication Services sector has recaptured the 189 zone to the upside in the past two trading sessions in a short-term bullish turn of events. This zone remains of importance as it coincides with the pre-COVID highs. However, until the 50-day moving average can be taken out to the upside, the recent price action appears to be a countertrend bounce. Relative to the S&P 500, the group has subtly broken out of relative resistance at the highlighted zone above the ratio’s declining 50-day moving average—could it be time for a bearish to a bullish reversal in relative performance for the space? Only time will tell.
Telecommunication Services have remained trapped below overhead resistance at the 146 zone for the majority of the year. While price has rallied above the flat 50-day moving average, 146 remains a key level. Relative to Communication Services, the group displays a textbook example of what “less bad” looks like, outperforming the sector year to date above the ratio’s rising 50-day moving average.
Media and Entertainment have recovered the short-term breakdown levels at 725 over the past two trading sessions below a declining 50-day moving average. Note that the declining moving average has provided an obstacle for the space year to date and one that the bulls want to see taken out to the upside. Until then, the bias is with the bears. Relative to the Communications Service sector, the group continues its run of underperformance on a series of lower highs and lower lows below the ratios declining 50-day moving average.
Breadth
The percentage of Communication Services components trading above their 10-day moving averages received a boost in yesterday’s trading session, printing a second consecutive reading above the 90% level. There were 10 instances since 2018 where the percentage of Communication Services components printed two consecutive readings above the 90% level for a median gain in the sector of 8.56%, with a 75.00%-win rate over the following quarter. While these results have been attractive, investors would be prudent to receive them with reduced enthusiasm due to the small sample size and limited history.
This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.
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