Shifts in long-term uptrends as measured by closing prices dropping below key ascending trendlines have been a common theme in broad markets over the past several months. On the other hand, niche sectors alongside those that are traditionally known as a hedge – such as commodities, utilities, or financials – have tended to outperform. Based on the charts discussed in the paragraphs below, one of the niche groups that could be worth a closer look is communication services.
Communication Services Select Sector SPDR Fund (XLC)
The communication services sector is not commonly followed by the retail market, but as the chart of the Communication Services Select Sector SPDR Fund (XLC) shows, the price is currently trading with a well-defined range. Followers of technical analysis will want to note how the 200-day moving average (red line) has provided support on each attempted sell-off so far in 2019.
This common level of support and the formation of a triangle pattern suggest that the ETF is trading within a period of consolidation and that the bulls are likely eyeing a sharp move higher toward the end of 2019 and into 2020. From a risk management perspective, given the proximity of the 200-day moving average, some traders may choose to buy near current levels in anticipation of a breakout and in an attempt to maximize the risk/reward. Stop-loss orders will most likely be placed below $47.53 in case of a sudden shift in fundamentals.
Facebook, Inc. (FB)
Despite negative press around privacy and related issues, Facebook, Inc. (FB) stock has managed to trend higher in 2019. As you can see from the chart, the price has managed to trade above its 200-day moving average for a long enough period to trigger a bullish crossover between the 50-day and 200-day moving averages back in March. The long-term buy signal was a technical indication that the bulls are in control of the long-term momentum.
Trend traders would likely look to buy into weakness and open an order as close to the 200-day moving average as possible, which you can see has proven to be an ideal entry point. Given recent price action and the proximity of major levels of support, it appears as though traders will be looking to buy again in hopes of a bounce, and most traders will likely set tight stop-losses below $174.99 in case the weakness continues.
Verizon Communications Inc. (VZ)
When it comes to the communications services sector, there are few companies more well known than Verizon Communications Inc. (VZ). Technical traders will want to make note of the formation of an ascending triangle pattern and the recent breakout.
The setup of the pattern will likely have many active traders setting their 12-month price targets near $70, which is equal to the entry point plus the height of the pattern. Stops will most likely be placed below $56.49 or the ascending trendline, depending on risk tolerance.
The Bottom Line
The communication services sector is relatively underfollowed in the markets in favor or other high-profile sectors such as technology and energy. However, based on the charts discussed above, it looks as though communication companies could be the ones to watch in 2020.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.