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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?

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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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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.