Conclusion, Investment Implications, Strategy

The Communication Services Select Sector SPDR Fund (XLC) is in the midst of minor and major bullish price trends while also amid a Jan 4th trend of Strategic  (quarterly) relative outperformance versus the benchmark S&P 500 (SPY).  Meanwhile, the total net assets invested in XLC are resuming their January trend of Tactical (monthly) expansion.  These three factors (positive trend, relative outperformance, expanding investor assets ) indicate favorable conditions for XLC to continue rising in the weeks and potentially months ahead.

Current Sector & Industry Group Ideas

Table 1 below is an updated version of Table 2 that appears in our weekly Keys To This Week: Sector & Industry Groups report published on Monday mornings.

Table 1

This table is also accessible via the Sector & Industry Group Ideas rectangle at the top of the Research Center.

Analysis and Rationale

The Communication Services Select Sector SPDR Fund (XLC) generally invests substantially all, but at least 95%, of its total assets in the securities comprising the index. The index includes companies that have been identified as Communication Services companies by the GICS®, including securities of companies from the following industries: diversified telecommunication services; wireless telecommunication services; media; entertainment; and interactive media & services. The fund is non-diversified.

The upper panel of Chart 1 below plots XLC daily since November along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies.  The lower panel plots the corresponding daily relative performance of XLC versus the SPDR S&P 500 ETF Trust (SPY) along with its 63-day moving average, which we use to identify the Strategic (quarterly) trend of relative performance versus the broad market.

Chart 1

The upper panel shows that XLC rose above its 200-day moving average on Jan 26th to indicate an emerging major bullish trend change, and that this trend was recently re-tested and held on Mar 13th.  Also note that the 50-day MA has recently crossed above the 200-day MA to indicate a positive intermediate-term shift in price momentum.  Major support exists at 52.93, the current location of the 200-day MA.

The lower panel of Chart 2 below plots the daily total net assets invested in XLC since November 2022 along with their 21-day moving average, which we use to identify a monthly trend of expansion or contraction. 

Table 2

The green arrow points out that these assets appear to be resuming their January trend of monthly (our Tactical time period) expansion as of Mar 16th.  Expanding investor assets fuel price advances.  As long as these assets remain in monthly expansion, the current rebound from major support in XLC is likely to continue.

As long as these positive factors — trend, relative performance, and asset flows — remain intact, XLC is likely to continue rising in the weeks and potentially months ahead.