This major ETF that's home to Meta and Disney is looking to break out again, according to the charts

Published Wed, Mar 20 20241:02 PM EDT

The Communications Services Select SPDR ETF (XLC) , home of Meta, Alphabet and Disney, is doing one of the following at any given time this year: Breaking out, digesting said breakout and then breaking out again. By our count, the ETF has broken out of eight different bullish patterns on the daily chart, with number nine being challenged now. As noted in our last piece about the S & P 500, persistent successful bullish patterns literally construct uptrends. Thus, for XLC's uptrend to persevere, we'll "simply" need bullish chart formations to keep working. It hasn't always been easy over the last 15 months. The XLC went five months between pattern breakouts from July through November. Ultimately, that extended pause led to the biggest breakout we've seen in the daily work. The second longest stint is taking place now, with the current pattern having started two months ago in mid-January. The continued success of short-term bullish patterns led to two much bigger weekly breakouts in 2023, as well. One target already has been hit ($74), while the higher objective ($93) still is in play. For XLC to get there, we'll need to see the smaller patterns continue to work. Not every single one needs to be successful, but most will need to work going forward. From a very long-term viewpoint, XLC has been riding a very consistent upward sloping trading channel since the 2022 low. We've seen this before — from spring 2020 through the summer of 2021. Coincidentally, the ETF has taken the exact path and climbed through the same price levels now as it did then. When XLC breached the bottom of the channel in September'21, the trend reversed on a dime from positive to negative. We'll notice that the monster reversal happened a solid four months before the S & P 500 topped out in early 2022… and we can blame Meta (META) for that. Meta tailwind When META cracked back then, it took XLC with it. The flip side is that META has been a huge reason for XLC's explosive comeback, as well. META has been the single biggest XLC component for a while. At now 22% of the index, it continues to have a huge influence on the ETF. Combined, the two classes of Alphabet's stock (GOOG and GOOGL) have a 24% weighting. Both GOOGL and META have outperformed XLC from the 2023 low, but META is up a whopping 280% over that time vs a 68% gain for GOOGL. This tells us that META will continue to be a huge influence on the sector – both good and bad. Making each of the XLC's components equal, the resulting chart looks a lot different, as represented here by the Invesco S & P 500 Equal Weight Communication Services ETF (RSPC) . However, it, too, has a constructive chart pattern – a potential large base that is almost two years in length. This ETF is VERY illiquid, thus, it's not the best trading vehicle… That said, one particular holding has a similar looking pattern: Disney (DIS) . On the weekly chart, DIS has fought its way back from multi-year lows last fall and now is getting very close to breaking through its own large base. If it can, the upside target would be near 157 using a measured move strategy. Lastly, four XLC components gapped higher after reporting Q4 earnings over the last two months and have stayed above their respective gaps – Disney, Netflix (NFLX) , Meta and News Corp (NWSA) . NWSA has been testing its gap recently, but the other three have remained noticeably above theirs. Continuing to advance after an upside gap is a sign of strength. The bottom line is that there are various ways to play the Communication Services space. Buying future breakouts in XLC is the simplest way, understanding that META is a big influence. -Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: (Owns Disney and Alphabet) THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.