Communications vs. Technology (Sector ETF: XLC/XLK)

This ratio highlights two of the market’s top-performing sectors: communications (XLC) and technology (XLK), which share considerable overlap in their constituent companies. While XLC has led in performance for much of the year, it recently showed some weakness, even underperforming against utilities last week. However, looking at the long-term picture, technology has historically been the stronger sector over communications.

The ratio chart between XLC and XLK currently displays a rectangle formation, suggesting that a downtrend continuation may eventually follow. For this to materialize, though, the ratio must first break below the rectangle’s lower trendline. Even so, it’s unlikely that communications will quietly lose momentum.

Liquidity Watch: Investment-Grade Debt vs. Treasuries and Stock Market Implications

The ratio between investment-grade corporate debt (LQD) and 3-7 Year Treasuries (IEI) is a valuable tool for gauging market liquidity through credit spreads. Although this ratio focuses on the bond market, its implications for stock markets are significant. Strong liquidity conditions, as indicated by this ratio, generally reduce the likelihood of a stock market crash.

Currently, the LQD-to-IEI ratio is on the verge of a major breakout from a rounding bottom formation. If it breaks out, as anticipated due to the Federal Reserve’s liquidity-boosting actions, it would signal a favorable environment for stocks to continue their upward momentum.

Stacks (STXUSDT)

STX is consolidating within a range established since June, currently testing potential resistance within the October 25th bearish gap ($1.701–$1.768). Bulls are displaying strength in this zone, possibly positioning for a rally if traders begin “selling the news” after an upcoming release. Should this rally occur, the next target could be the stops above October 24th’s swing high at $1.842, with additional resistance at October 20th’s level of $1.884.

If momentum sustains, further resistance may appear around relatively equal highs at $1.962, $2.000, and $2.074, potentially supporting a continued rally. Conversely, a bearish turn could see support tested near $1.652, aligning with last week’s candle tail midpoint. Should a deeper move occur, it may target lows at $1.560 and $1.530, with potential profit-taking around September 16th’s swing low at $1.470 if a decline continues.