The communication services sector – which is made up of companies that fall within the media, retailing, and software and services industries – tends to be underfollowed as a group in favor of the broader tech sector. However, based on the charts discussed below, a tactical view on the communication services sector could be warranted, and active traders could be poised to be handsomely rewarded should prices break beyond some nearby resistance.
Communication Services Select Sector SPDR Fund (XLC)
For active traders looking to take a focused view of the communications services sector, the best bet may be the Communications Services Select Sector SPDR Fund (XLC). With 26 holdings and total net assets of just over $4 billion, it is one of the most liquid niche-level funds in the market, and based on the chart, you can see that the price is currently trading in a tight range between two key levels of support and resistance.
Technically, the sideways price action near the resistance of the 200-day moving average suggests that bears are still in control of the trend, but a close or two above $46.67 would likely act as a catalyst to a sharp flood of buy orders and a likely run toward the 2018 highs. Price action over the coming few trading sessions will be telling about the direction. Specifically, two or more consecutive closes beyond either of the identified levels will most likely dictate direction over the coming weeks or months.
Facebook, Inc. (FB)
Shareholders of Facebook, Inc. (FB) have faced their share of volatility over the past several months. The recent gap higher has sent the price toward the resistance of the 200-day moving average, which is preventing a more significant rise, just like what is shown on the chart of XLC above.
Followers of technical analysis will likely keep a close eye on the two dotted trendlines because a break beyond either would trigger buy and stop orders, which could be the catalyst needed to dictate the trend for the next several months. In terms of a timeline, based on the pattern, traders would likely expect that a move beyond one of the trendlines could occur within the next week.
Alphabet Inc. (GOOG)
Shares of Alphabet Inc. (GOOG) are currently trading within a very similar range to the ones discussed on the charts of XLC and Facebook. As you can see below, the nearby resistance of the 200-day moving average has prevented the price from heading higher in the past and is a confirmed barrier for bulls seeking a move higher.
With that said, the bulls will likely keep a close eye on this chart over the coming days because a close beyond $1,122.27 would likely be the catalyst needed to send the price beyond the resistance of the dotted trendline and then higher from there. Should the price break beyond the 200-day moving average, then traders would likely set their targets to the July high near $1,275.
The Bottom Line
The communications services sector is not often talked about as a group, but based on the charts discussed above, it looks as though now could be the ideal time to increase exposure in anticipation of a breakout beyond nearby resistance.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.