Top Charts from the Communication Services Sector
No sector was worse than Communication Services during the bear market of 2022.
From the S&P 500’s peak on January 3, 2022 to its trough in mid-October of that year, the benchmark large cap stock index fell 25%. Over that same period, Communication Services lost a whopping 40% of its value.
From that day forward, things have looked a little different. Communications has gone from worst to first, rising almost 80% and outpacing even the semiconductor-led returns of the Information Technology sector:
The strength has continued into 2024. Communication Services is the best performing sector so far this year, sporting a 16% gain compared to just 5% for the S&P 500. The relative strength picture is clear. When compared to the S&P 500, the sector is breaking out to multi-year relative highs after a 6-month cup and handle consolidation pattern.
Like the S&P 500, though, Communications stocks have come under pressure over the last week or so on an absolute basis. Yes, the sector is still outperforming, but it’s doing so by falling less, not by rising more. For Communications, the broad selloff in stocks couldn’t have come at a more logical level: the former all-time highs.
After briefly surpassing the former highs, prices are now back below them. This failed breakout is just one of a handful that we called out earlier this week, and it comes along with a big bearish momentum divergence. Failed breakouts and bearish momentum divergences often lead to mean reversions, and sometimes they can turn into full fledged trend reversals. In either case, the near-term risk to Communications stocks - and the market as a whole - is elevated.
Digging Deeper
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