fbpx

The picture for the Communication Services sector has worsened since we last looked at the group in a bearish light in April. Under the surface, the defensive Telecommunication stocks are holding up better than the offensive Media and Entertainment names. Breadth, at least from a trend perspective, has become washed out. Combined with the sector sitting at the pre-COVID highs and long-term support, this could be a logical area for a countertrend bounce; the question remains, will it be enough to turn the tide?

ACCESS our full advisor toolkit for a deeper look at the markets including our MONTHLY call, CHART BOOK, small cap ideas, and more.

Communication Services

The trend is Communication Services remains bearish, as it did the last time we visited this group. The index is below the declining 50 and 200-day moving averages, with the former in line with price-based resistance near the 215 level. Support at the pre-COVID highs has been tested and is holding for now. However, it is hard to ignore the bearish case until resistance is overcome. 

Relative to the S&P 500

Relative to the S&P 500, the group remains in a downtrend, below the declining 50-day moving average, despite a rally attempt in the near term. The series of lower highs and lower lows since the September peak remain firmly in place.

Drilling down on the sector, we can see which industry groups are leading and lagging relative to the Communication Services Sector.

Telecommunication Services

Telecommunication Services stocks have not been immune to the selling pressure that has gripped the market over the past seven weeks. The group has fallen into a consolidation zone after failing to hold a breakout in April. There is near-term support at the 50-day moving average. The bulls have a slight edge, but a move above 146 is needed to have confidence in further upside.

Relative to the Communication Services sector, Telecommunication Services continues to trend higher, above a rising 50-day moving average.

Drilling deeper into the industry, both Diversified and Wireless Telecommunication Services are in sloppy trends. Both groups are oscillating around their 50-day moving averages as they search for a clearer direction.

Media & Entertainment

The Media & Entertainment industry group remains the trouble spot for the sector. The index has sliced below support at 850 while remaining under the declining 50-day moving average. Support comes into play near the pre-COVID highs in the 700-710 zone.  

The relative trend has completed a bullish to bearish reversal and remains under the declining 50-day moving average.

The last time we looked at this sector, we noted that the three subgroups in the Media and Entertainment industry were locked in a competition to claim the title of the most bearish trend. Unfortunately, nothing has changed since the middle of April. All three groups remain in strong downtrends, below declining 50-day moving averages.

Breadth

As the index continues to trade well below its 50-day moving average, the percentage of Communications Services components trading above their 50-day moving average has printed persistently low readings below the 20% level over the past several weeks. There were 207 instances since 2014 where the percentage of Communication Services components printed readings below the 20% mark for a median gain in the sector of 6.06%, with a 72.63%-win rate over the following quarter. With the sector sitting at long-term support and breadth becoming washed-out from a trend perspective, this could be a logical area for the group to stage a countertrend bounce to the upside. While these results have been positive, potential gains should be viewed with heightened risk management in mind as the sector continues to remain below both 50 and 200-day moving averages, as well as underperforming the S&P 500, as noted in the section above.

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

ACCESS our full advisor toolkit for a deeper look at the markets including our MONTHLY call, CHART BOOK, small cap ideas, and more.

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.