TELECOM HOLDERS EXCEED 200-DAY LINE -- TELECOM IS STARTING TO SHOW SOME LIFE FOR THE FIRST TIME IN A LONG TIME
TELECOM HOLDERS BREAK 200-DAY LINE ... Normally I focus my attention on market groups that are showing market leadership. I look for market sectors or industry groups that rank highest in the weekly and monthly relative strength rankings and that have strong looking chart patterns. Today's story is a departure from that approach. I'm going to take a more contrarian view and look at the telecom sector which has been one of the year's worst performers. The reason I'm looking at it today is that the group is showing good chart action and is starting to show some relative strength -- at least for the week. Chart 1 shows the Telecom Holders (TTH) moving up to a five-month high and trading over its 200-day average for the first time in six months. Its relative strength line is starting to bounce a bit as well. It's going to have to do lot more to turn the trend higher; but today's upside action may be a start in that direction.
Chart 1
TELECOM HAS LAGGED WAY BEHIND... Chart 2 shows how much of a laggard the telecom sector has been, especially since the market bottomed at the end of 2002. Since that late 2002 bottom, the S&P 500 (green line) has gained over 50% while the TTH (purple bars) has risen about 30%. Over the last 52 weeks, the S&P has gained 13% while the TTH has been basically flat. Which brings us back to the contrarian view that telecom is one of the cheapest sectors of the market that may have to start playing catch-up. All the more reason to take note when it starts to show some signs of turning higher.
Chart 2
TELECOM HOLDERS APPEAR TO BE BOTTOMING ... Chart 3 shows that the Telecom Holders (TTH) have been in a relatively flat trading pattern since the end of 2002 when they hit bottom along with the rest of the market. The two converging trendlines give the appearance of an ascending triangle. That's identified by a flat upper line and rising lower line and is usually a bullish pattern. To confirm that bullish analysis, however, the TTH needs to clear the upper line near 30. The good news is that it's starting to bounce from trendline support going back to 2002 (see arrow). The weekly bars in Chart 4 show that the TTH is also bouncing from chart support formed last summer near 26. Also encouraging is the fact that the 9-week RSI has moved over the 50 line and the weekly MACD histogram is in positive territory. That gives today's upside breakout in the TTH a bit more credibility. If you're looking for a market leader, telecom isn't the right place to be. But if you're looking for a market laggard that's been out of favor for a long time and just starting to play catch-up, telecom may be worth a look. Some of the individual telecom leaders are SBC Communications, Bellsouth, Nextel, and Sprint. I'll show their charts a little later today.
Chart 3
Chart 4
