The evolution of wireless networks is moving into its fifth generation (5G), and the hype is starting to build on both the consumer and investor fronts. It just about goes without saying that the demand for fast mobile connections is here to stay, and the companies that are able to quickly adopt to the fast-growing trends will likely be the ones to dominate. In the paragraphs below, we'll take a look at several charts and try to determine how active traders will be positioning themselves over the weeks or months ahead.
iShares U.S. Telecommunications ETF (IYZ)
Investors who seek exposure to niche market segments such as telecoms usually turn to exchange-traded products such as the iShares U.S. Telecommunications ETF (IYZ). Fundamentally, the fund comprises 41 companies that provide telephone and internet products, services, and technologies.
As you can see from the chart below, the price of the fund has recently found support near its 200-day moving average (red line). The bounce off of the major level of support has also coincided with a breakout above a key trendline and a bullish crossover between the 50-day and 200-day moving averages. Followers of technical analysis will likely use these two signals as confirmation of a move higher, and most traders will likely look to protect against a sudden sell-off by placing stop-loss orders below $29.20.
AT&T Inc. (T)
With a weighting of 21.94%, AT&T Inc. (T) represents the largest holding within the IYZ ETF. Fundamentally, the company sports a market capitalization of approximately $275 billion, and as the chart below shows, the price is trading within one of the strongest uptrends found in the public markets.
Followers of technical analysis will want to note how the area around the 50-day moving average (blue line) has propped up the price in the past. Most traders will expect this behavior to continue into the future and use the recent retracement as a buying opportunity and thereby attempt to maximize the risk/reward at current levels.
Verizon Communications Inc. (VZ)
Another behemoth within the U.S. telecom sector that deserves the attention of active traders is Verizon Communications Inc. (VZ). As you can see below, the price is currently trading near a major level of support shown by the dotted trendline at $58.25.
This chart is a textbook style example of how a major level of resistance can reverse and become support once it is broken to the upside. Based on this pattern, we'd expect buyers to open positions as close to the trendline as possible and protect against a sudden shift in fundamentals by placing stop-loss orders below $57.37.
The Bottom Line
Major changes in wireless network technology will likely act as the next catalyst to a major move higher across the U.S. telecom sector. As shown in the charts above, nearby trendlines and lucrative risk/reward setups seem to be aligning in a way that suggests that this could be the buying opportunity of the year.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.