A Critical Neckline That Needs To Be Cleared

Thus far, communication services (XLC) has been the leading sector in 2023.

The XLC is up 23.13% year-to-date, while both technology (XLK) and consumer discretionary (XLY) are strong as well, gaining 20.06% and 12.55%, respectively. No other group is up more than 3%. This is actually good news as Wall Street is POURING its resources into the most aggressive sectors. You wouldn't do that if you felt the stock market was overvalued and poised for a plunge. One of the keys for the market here in Q2 is the XLC. While it's been strong so far in 2023, there's plenty of work left to do on its chart:

Enter Communication Services (XLC):

This rather symmetrical bottoming reverse head & shoulders pattern suggests that prices will go much higher if and when this neckline is cleared. But, with all patterns, there's no confirmation until we see the price surge through neckline resistance. One very bullish signal telling me that it's a matter of when, not if, is that the sector's most important industry group is internet ($DJUSNS), and it just broke above key price resistance at 2500. That leads me to believe that we'll get the XLC breakout and this secular bull market resumption is well underway.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.