The Communication Services sector continues to chop and grind around a confluence of the 50-day moving average, falling resistance, and the pre-COVID highs at the 190 zone. Relative performance is once again faltering in breaking down from the April relative lows. As the sector struggles, over 60% of sector components have recaptured their own 50-day moving averages to the upside, but will it be enough to turn the tide of underperformance in the space?

S&P 500 Communication Services

The Communication Services sector continues to struggle with a declining 50-day moving average after the recent basing action at the pre-COVID highs around the 190 zone. Note the falling trendline of resistance that has plagued the group since April. Relative to the S&P 500, the group has broken down from relative support at the highlighted zone below the ratio’s declining 50-day moving average in a continued bout of underperformance.

Telecommunication services have rallied from long-term support at the 128 zone and the Q4 lows of last year, continuing to chop and grind in the trading range that’s defined the industry group for nearly a year. Relative to Communication Services, the group has rolled over below the ratio’s flat 50-day moving average to test relative support at the April highs, an important zone for the industry group to hold on a relative basis.

The basing action within Media & Entertainment continues to play out as the group tests resistance at the falling trendline and battles with the 50-day moving average. Bulls want to see a breakout through this zone, and the 50-day moving average beginning to rise to have confidence in a bearish to bullish reversal. Until then, the bias remains with the bears. Relative to Communication Services, the group is testing relative resistance at the highlighted zone above the ratio’s 50-day moving average. Here too, the bulls want to see a breakout.

Breadth

The percentage of Communications Services components trading above their 50-day moving average received a boost in the August 1st trading session crossing above the 60% mark. There were 105 instances since 2013 where the percentage of Communications Services components trading above their 50-day moving average crossed above the 60% mark for a median gain in the sector of 2.43%, with a 64.71%-win rate over the following quarter. While these results have been attractive, investors would be prudent to wait for a downtrend breakout in the sector to have confidence in a potential upside move.

This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.

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