TELECOM ETF BREAKING OUT -- VERIZON AND SBC NEAR MULTI-YEAR HIGHS -- BELLSOUTH CLEARS SUMMER HIGH
TELECOM ETFS HITS NEW 52-WEEK HIGHS... The telecom group is breaking through some significant resistance barriers. Back in late July (July 27, 2004) I wrote about the telecom ETF shown in Chart 1 just starting to bounce off its 200-day moving average (see red circle) and starting to show upside leadership versus the S&P 500 (see green arrow). Since then, the group has continued to prosper. Chart 1 shows the Telecom iShares (IYZ) breaking through its early 2004 peak to reach a new high for the year (Actually, a 2 1/2 year high). Its relative strength line continues to climb as well. That's what I like to see -- absolute and relative strength.
Chart 1
VERIZON LEADS TELECOM UPMOVE... This is the same headline that I used in a early September upate (September 07, 2004) in which I showed the chart plotted below. The chart shows that VZ had broken a two-year resistance line and was hitting a new 52-week high. Even more importantly, the chart suggests that the telecom leader was just starting to break out of a two-year basing pattern and starting a new bull trend. The relative strength line along the bottom of the chart shows new upside leadership by Verizon starting during July. That's a bullish combination. The stock is hitting another 52-week high today. That's important because Verizon is the biggest stock in the group (more on that later).
Chart 2
BELLSOUTH BREAKING OUT... Here's another influential telecom stock that's trending higher. Bellsouth has just broken through its summer peak to reach the highest level since the first quarter of 2004. Notice the big jump in its relative strength line in late July (see arrow). Of the big three telecom stocks shown in this update, BLS appears to be the cheapest.
Chart 3
SBC NEARS TWO-YEAR HIGH... Here's another potential winner. The weekly bars show SBC Communications moving up to challenge the highs of the last two years. The pattern of "rising bottoms" since early 2003 favors an upside breakout. Here again, it's relative strength line bottomed during July and is trending higher. This is important for the group because SBC is another one of the bigger stocks in the telecom ETF shown in Chart 1.
Chart 4
WHERE TO FIND ETF HOLDINGS ... I think it's a good idea to see which stocks represent the biggest holdings in a sector Exchange Traded Fund (ETF). You can see which stocks are driving the ETF. If you're a stock picker, it tells you which stocks to focus on. Since all of these ETFs are traded on the American Stock Exchange, that's the best place to find the information. Go to (amex.com) and click on ETFs (left menu). In the "select" box to the upper right, click on "industry sectors". You'll see the Dow Jones Telecom iShares shown in Chart 1. Click on the name which takes you to the fund. Then click on "Tear Sheet". Scroll down to see the top ten holdings in the telecom ETF. You'll see that Verizon is the biggest holding (22%), SBC is second (19%), and Bellsouth is third (8%). You can find the top ten holding of any ETF (or Holder) traded on that exchange. It's valuable information.
