The Communication Services sector has made us wary for quite some time now.
The primary source of our concern has been the weakness below the surface. Even though the sector has been a huge outperformer all year – its 39% gain lags only the 42% rise for Information Technology – most stocks in the sector just aren’t doing that well.
Check out the equally weighted Communication Services ETF vs. the equally weighted S&P 500: you’ll find a ratio that’s meandering sideways after a steep, extended downdraft. This is not what internal relative strength looks like.
