The communication services sector of the financial markets usually goes relatively under-followed due to the nature of the underlying businesses. More specifically, companies that provide data-transmission, cellular, wireless communication services, and related content and information through various types of media tend to get overlooked in favor of higher-growth segments such as semiconductors, artificial intelligence, and machine learning.
In this article, we'll take a look at the triangle patterns that are forming on charts across the communication services sector and discuss why this could be the sector to watch for the remainder of 2019 and likely for the first part of 2020.
Vanguard Communication Services ETF (VOX)
Active traders who want to gain exposure to niche market segments such as communication services often turn to Vanguard's sector ETFs such as the Vanguard Communication Services ETF (VOX). In this case, traders look to the VOX ETF due to its low fees and liquidity as well as its targeted exposure.
As you can see from the chart below, the price has been trading within a defined range for most of 2019. The trendlines have provided clear levels for traders to place their orders over the past year, and this will likely continue over the months ahead. As the price nears the combined support of the lower trendline and its 200-day moving average, we would expect traders to start adding to their long positions. A move toward $87 could lead to a sharp bounce higher heading into 2020. From a risk management perspective, stop-loss orders will most likely be placed below $86.95 or the lower trendline in case of a sudden sell-off or shift in underlying fundamentals.
Alphabet Inc. (GOOG)
Alphabet Inc. (GOOG), which provides services that support the communication of millions of people on any given day, is the top holding of the VOX ETF. Taking a look at the chart below, you can see that a symmetrical triangle has been forming since the early days of summer. The recent breakout is a bullish sign for those who follow technical analysis.
The recent pullback toward the 50-day moving average and the top trendline will likely be looked at as a buying opportunity and could be the catalyst that some are hoping will send the price higher again. Based on the chart, traders will likely set their target prices near $1,450, which is equal to the entry point plus the height of the pattern.
Facebook, Inc. (FB)
Another top holding of the VOX ETF that could be worth a closer look is Facebook, Inc. (FB). As you can see from the chart below, a symmetrical triangle has also been forming since early June, which could be used by traders to signal a move higher. This pattern is often looked to as a consolidation pattern and is found during a major trend.
In the case of Facebook, you can see that the breakout occurred near the long-term support of its 200-day moving average. The combination of major support levels will likely add to the conviction of the bulls and could be used when determining the placement of stop-loss orders. Based on the height of the pattern, traders will likely set target prices near $240.
The Bottom Line
The communication services sector is not one that is commonly followed by most retail investors. However, taking a look at the chart below, you can see that well-defined triangle patterns combined with recent price action suggest that this could be the group to watch for the remainder of 2019 and likely for the early part of 2020.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.