This communication services ETF could be on the verge of a breakout, charts show

Communication Services ETF Shows Growth Potential, Offering New Opportunities for Investors

Think of the Communication Services sector like a small team in a relay race—when the fastest runners do well, the whole team wins big. But if some stars slow down, others have to step up for the team to stay in the lead. That’s what’s happening right now with the State Street Communication Services Select Sector SPDR ETF (XLC).

Why Investors Should Care

The Communication Services sector is a big part of the S&P 500, making up about 10.5% of the index. That’s tied for third place with Consumer Discretionary, right behind Financials and the huge Technology sector. When this sector moves, it can affect lots of portfolios and even the broader market.

The Bullish Case: Why XLC Could Go Higher

  • XLC is showing a bullish chart pattern called an “inverse head-and-shoulders.” If it breaks above a key price level (around 118), it could keep going higher.
  • Even though the biggest stocks in XLC—like Alphabet (Google), Meta (Facebook), Netflix, and Disney—haven’t all been winning lately, the ETF is still close to its old highs. That means other stocks are picking up the slack.
  • Recently, companies like TKO Group, Fox Corp, Warner Bros. Discovery, and Comcast have been climbing steadily. Their gains are helping XLC stay strong.
  • If the mega-cap stocks start to lead again, XLC could get a big boost and possibly reach new highs.
  • Broad rallies like this in sectors often lead to strong, lasting gains. According to S&P Global, sector-wide breakouts have historically led to outperformance for several months.

The Bearish Case: What Could Go Wrong

  • XLC is highly concentrated—just 23 stocks make up the sector, and nearly 40% of the ETF is in a handful of giants. If these big names stumble, the whole sector could drop fast.
  • Alphabet’s strong run earlier this year has faded, and Meta, Netflix, and Disney aren’t leading. If the biggest stocks don’t pick up, the ETF could struggle.
  • If the current leaders (like TKO, Fox, Warner Bros., and Comcast) lose steam, there may not be enough support to keep XLC near its highs.
  • Breakouts can fail—if XLC can’t stay above the key 118 price level, it could fall back and disappoint investors hoping for more gains.
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Historical Context and Data

It’s worth noting that sector ETFs sometimes see big moves when leadership shifts. For example, in 2020, the Communication Services sector outperformed the S&P 500 by about 5% when both mega-caps and smaller stocks rallied together (State Street Global Advisors). But when leadership fades, the sector can quickly lag behind.

Investor Takeaway

  • Watch the 118 level: If XLC breaks above this price on strong volume, it could signal more gains ahead.
  • Check the leaders: Keep an eye on Alphabet, Meta, Netflix, and Disney. Their performance can sway the whole sector.
  • Look for broad strength: If more stocks in the sector are rallying—not just the big ones—it’s a good sign for a lasting move up.
  • Be mindful of concentration risk: With so much of XLC in a few stocks, a stumble by one can hurt the ETF.
  • Diversify your portfolio: Consider mixing sector ETFs with other types of investments to manage risk.

For the full original report, see CNBC

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