Telecom has been a top-performing sector in recent months, as other parts of the market weakened. But things are changing -- and the twists and turns within the telecom sector have been interesting.
In this daily chart of AT&T (T), above, we can see how prices bottomed late in the third quarter of 2015. After this bottom, prices made a nice rally. In February and March, we can see a bearish divergence, as prices made higher highs and the momentum indicator made a lower high in the same time period.
Prices have begun a retreat, and are coming off their best levels. We are testing the 50-day Simple Moving Average, and the On-Balance-Volume (OBV) line is moving down -- telling us that sellers have become more aggressive. T could decline to $37 or lower, but a rally back above $39 with good volume could mean we are starting another up leg.
In this chart of T-Mobile US (TMUS), above, we see a different story, with prices of TMUS trading largely sideways over the past twelve months and rallies to around $42 failing. The OBV line is pretty much neutral. Traders looking for clear signals from the 50-day and 200-day moving averages have been whipsawed in recent months. As prices rallied in March and April, we climbed at a slower rate, and there is a bearish divergence between the price action and momentum. It looks like TMUS will continue to search for a sustained direction.
In this daily chart of Sprint (S) above, we can see that the OBV line turned up in January, suggesting that buyers were more aggressive. Prices are in a small "no-man's land" between the rising 50-day average line and declining 200-day line. Momentum is not giving us a fresh clue on the future direction. If S can close above $4 on strong volume, we want to favor the long side of this stock.
Verizon had a good rally from January to the end of March -- and then the landscape changed. There was a bearish divergence between the higher highs in prices and weaker momentum readings.
Prices have weakened, and broken below the 50-day moving average. With prices pointed down in the short run, we could see further weakness to $48, and a test of support at the 200-day moving average line just below $48.
Be picky on what telecom you choose to buy, if you decide to go shopping.