Over the past several months, the communications sector has grown in prominence in the portfolios of investors around the world. Due to the number of people suddenly working and staying home due to the COVID-19 pandemic, demand for products and services in this sector will likely remain strong for many months to come. In this article, well take a look at several chart patterns from across the sector and try to determine how followers of technical analysis will be positioning themselves to take advantage of the surge in demand.
iShares Global Communication Services ETF (IXP)
Active traders who are interested in niche sectors such as communication services often turn to exchange-traded products such as the iShares Global Communication Services ETF (IXP). Taking a look at the chart below, you can see that the bounce from the March lows has resulted in the price of the fund moving back above its 200-day moving average.
Traders will want to note how the 200-day moving average has acted as a strong level of support in the past and how it propped up the price again earlier this month, which suggests that the bulls are in control of the momentum. The recent move higher has also triggered a bullish crossover between the 50-day and 200-day moving averages, which will likely be used by followers of technical analysis to mark the beginning of a new long-term uptrend. From a risk-management perspective, most traders will likely set their stop-loss orders below $58.49 in case of a sudden shift in market sentiment.
Facebook, Inc. (FB)
Usurping to many, the top holding of the IXP ETF is Facebook, Inc. (FB). Due to the company's competitive advantage of facilitating connections between people from around the world, traders often view Facebook as a macro bet on global communication services.
Taking a look at the chart, you can see that the strong move from the March lows has triggered a bullish crossover between the 50-day and 200-day moving averages. The aforementioned moving average crossover combined with the recent break beyond the January highs puts the short-term momentum clearly back in the favor of the bulls. Stop-loss orders will most likely be placed below $213.78 or $197.61, depending on risk tolerance and investment horizon.
Alphabet Inc. – Class C (GOOG)
Another top holding of the IXP ETF that will likely capture the attention of active traders over the weeks ahead is Alphabet Inc. – Class C (GOOG). As you can see from the chart below, the price of the stock has risen above the resistance of the 200-day moving average and triggered a bullish crossover between the long-term moving averages in a similar fashion to the charts discussed earlier.
However, traders will also want to note that, in the case of Alphabet Class C shares, the price has yet to cross above a nearby influential trendline. Bullish traders will likely want to keep a close eye on the dotted trendline because several consecutive closes above that level could be the catalyst to a strong flood of buying pressure. Again, from a risk-management perspective, stop-loss orders will likely be placed below the 200-day moving average at $1321.80 in case of a sudden shift in market sentiment.
The Bottom Line
Stocks within the communication services sector have become the focus of attention for many traders because of the key role these companies play in the daily lives of millions of people but also because of the break beyond key levels of resistance. As shown on the charts above, nearby support levels put the risk/reward at current levels in the favor of the bulls, and many will likely place stop-loss orders below the respective 200-day moving averages in case of a sudden selloff.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.