TELECOM HOLDERS BREAKOUT IN MOVE TO DIVIDEND PAYING STOCKS -- AT&T AND VERIZON NEAR BULLISH BREAKOUTS -- ADD TELECOM TO DEFENSIVE FAVORITES ALONG WITH CONSUMER STAPLES AND HEALTHCARE

ANOTHER DEFENSIVE PLAY... One of the main themes I've been showing over the last few weeks has been the rotation toward large-cap stocks in traditionally defensive areas, mainly consumer staples and healthcare. Yesterday, I wrote about a list of top dividend payers (from a weekend Barron's article) that included stocks in mostly defensive categories that also included telecom. Most of those stocks are starting to attract new attention. Two telecom stocks on the dividend list were AT&T and Verizon. I showed Verizon rallying yesterday. Today the whole group is surging, including AT&T. As a result, Telecom Holders (TTH) are now trading over 24 for the first time in more than year (see circle in Chart 1). That's a bullish breakout in a group that's just been treading water over the past year. Also impressive is the recent upturn in the TTH:SPX relative strength ratio (gray line) that has just broken an eight-month down trendline. That shows new absolute and relative strength. [I've recently shown the same return to favor in consumer staples and healthcare]. Investors are starting to reach for safety (and some dividend insurance) in case the market rally runs out of steam.

Chart 1

VERIZON NEARS BULLISH BREAKOUT... Yesterday, I showed Verizon Communications hitting a three-month high and starting to show new relative strength. The stock is up 2% today and is nearing a test of its summer high near 32. A upside breakout through that barrier appears likely.

Chart 2

AT&T NEARS 52-WEEK HIGH ... AT&T is having a strong day as well. Chart 3 shows the stock nearing a test of its September peak. There again, an upside breakout to a new 52-week high appears likely. The AT&T/SPX ratio (gray line) shows the same pattern of turning up for the first time since March. I've been suggesting that investors looking to invest new money concentrate on large dividend paying stocks, mainly in consumer staples and healthcare. I'd now add telecom to the list.

Chart 3