Communication Services Sector: Top Charts and Trade Ideas - 12/1/2023
The Communication Services sector has been on a roll in 2023.
After huge gains for growth sectors in the first 6 months of the year, most of the equity market peaked in late July and sold off throughout the months of August and September. Communications, meanwhile, continued to hover near its highs, up more than 40% for the year. October was more of the same, with the sector even managing to touch new 52-week highs on the 11th.
Then came earnings season. Alphabet reported results for its cloud business that disappointed the street, and the sector’s most important stock dropped 9.5% on the news.
Just as quickly as things fell apart, though, they came back together. November was one of the best months ever for stocks, as the S&P 500 closed 8.9% higher. That put Communications up more than 50% for the year at one point, and the sector trails only Information Technology since last December.
How long can the outperformance last? Let’s take a look.
Structurally, the group is still in a relative uptrend versus the rest of the index, despite the Google-led weakness that plagued the group in October. The 2018 lows are the line in the sand. We wouldn't be surprised to see the ratio backtest its breakout above that key rotational level, but we definitely don't want to see break back below. If we do, it'll be best to approach this sector from the underweight side.
We’re also keeping an eye on the summer highs for the sector. We only want to be long Communications as a group if the November breakout remains intact. Otherwise, we’d be looking at a significant failed move that could result in a full-fledged trend reversal.
Breadth for the group remains healthy, with at least half of its constituents in clear technical uptrends on short, intermediate, and long-term bases, and only 1/3 in technical downtrends.