Anytime one of the weakest sectors in a recent market environment leads a day's gains, that has me suspicious to what some call a "short-covering rally." The North American Telecom Index (XTC.X) leads sector winners today with an 8.9% gain. This has me thinking the "smart money" that is doing the buying in the group today is from bears that have been short/put this sector for the past couple of weeks and locking in some gains at a more rapid pace today.
North American Telecom Index - Daily Interval
Last week we "rolled down" retracement on the XTC.X to try and identify a level of support for bears to lock in some gains, but the 523 level was not achieved. Similar to the "inside day" we saw in the NASDAQ-100 Trust (QQQ) in the 11:00 Update, we see the same thing here in the XTC.X. Since this is a sector I've classified as the technically weakest sector I want to continue monitoring things from here. The first level I look to serve as resistance is near the 603 level and potentially the 50-day MA up at 635. In February, the XTC.X did rally from the 603 to 702 level over a two-week period (a 16% move) then turned south to trade new 52-week lows. A similar +16% gain from last week's lows near 533 might have the XTC.X rallying to the 618 level.
Should the XTC.X show continued strength above the 50-day and be able to get above the 653 level, then bears need to be on the alert that market participants are getting more aggressive on the buy side of things.
My thinking is that if a weak sector (full of weak stocks) begins to pull free from a bottom and continue to show strength, the sector bears must be rethinking things as it relates to their earlier scenario for weakness or a new bullish dynamic may be at play.
Semiconductor Index Chart - Daily Interval
I've characterized the Semiconductor stocks (especially equipment stocks) as some of the stronger stocks in technology. The SOX.X is seeing a nice gain today, but lagging that of the XTC.X. This tells me that while we're seeing some "smart money" bulls continue to accumulate the sector, the greater gain in telecom stocks as a whole as "smart money" bears doing most of the buying.
Some may question the "smart money" descriptions above, but for the most part, "smart money" stays with a trend until it is broken. As such, the upward trend for the SOX has the bulk of "smart money" on the bullish side of things, while the "smart money" in telecom has been to the downside.