Thu, November 18, 2021 | 7:03PM ET

Communication Svcs violating support makes Media, Telecom, still areas to avoid

Name: FS Insight
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FS Insight Team

Technical Strategy Video:

Communication Svcs violating support makes Media, Telecom, still areas to avoid

Key Takeaways

QQQ push to new highs has not been followed by SPX. Breadth finished nearly 2/1 negative, and new lows are expanding; Momentum is diverging in overbought territory
Communication Svcs breaking trends going back since Spring of this year. Media, Telecom, and many Video game companies still look quite weak and should be avoided
Retailing still seasonally strong, and remains a group to favor in the short run

QQQ chart below shows NASDAQ up over 1% on Thursday. SPX has not followed suit while DJIA made its move in mid-October and is now lagging in recent days. Importantly, 9 of 10 sectors fell in trading today despite the positive finish for Indices. XLY and XLK’s 1% gains were a bit of a mirage to Discretionary and/or Tech strength, as Equal-weighted ETFs for both groups, RYT the Equal-weighted Tech ETF, and RCD the Equal-weighted Discretionary ETF by Invesco, both fell in trading. Volume has been dropping off sharply in recent days, while percentage of stocks hitting new 52-week lows has been steadily increasing. Overall, this isn’t our “normal” November, and would bet that upside likely proves limited into next week before reversing course.

Communication Services breaking support should make most Media, Telecom still areas to avoid near-term

In the last 24 hours we’ve seen a fairly pronounced breakdown in the Communication Svcs sector, which as shown below by Invesco’s Equal-weighted Communication Services ETF (EWCO) has violated support going back to this Spring (EWCO)

This Equal-weighted ETF gives a truer feel for the Communication Services sector, as it avoids the heavy weightings in FB and GOOGL which make up nearly 50% of the popular XLC ETF.

Stocks like ATVI, TWTR, VIAC, EA showed pronounced weakness on Thursday, with VIAC breaching former lows going back since April 2021, which happened initially in late October. Until there’s evidence of stabilization in this group, it makes sense to hold off on getting too aggressive in buying dips. Thursday (11/18) breakdown is a short—term Negative for this group in pulling back to multi-month lows, so one should underweight/avoid this area until EWCO can hit support.

Retailing still attractive with Department stores pushing higher, while Auto parts company stocks have consolidated gains.

Some excellent follow-through in many parts of Retailing in recent days, and this remains an area of technical focus for longs and should be favored.

As seen below (Follow-up from last week), XRT breakout of this multi-month triangle is certainly a technical positive after months of inaction. Areas like Department stores in the short run (KSS, M) have proven to be some of the strongest areas within Retailing near-term.

Seasonality typically rewards those who own Retailing into the Thanksgiving holiday, though as December gets underway, sometimes these gains can be ripe to reverse. Near-term, this still favors Retailing long exposure and this chart remains constructive.

Some of the better names within this space currently are ETSY, ULTA, DKS, UA, DDS, ANF, SIG, MOV, BBY, HIBB, and as mentioned above, M and KSS remain quite attractive.

XRT chart below showing massive intermediate—term range broken last month

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