Today’s chart of the day is from Investors Intelligence technical analyst Tarquin Coe, who looks at the relative performance of the telecommunications sector as measured by iShares U.S. Telecom ETF (NYSEArca: IYZ).

From an Investors Intelligence note:

“Telecom stocks have outperformed over recent sessions as the general market gets frothy, possibly the early sign of a defensive rotation. Rotations can last a number of weeks, so it does not call for immediate hatch-battening, but it is something to heed.

The ratio chart of the iShares U.S. Telecom (IYZ) against the SPDR S&P 500 ETF (NYSEArca: SPY) showed sharp outperformance by the industry going into the September 2012 market high.

Recent movement on the chart shows a sharp rally from support off the July 2012 low, accompanied by a bullish momentum divergence on the MACD [moving average convergence divergence]. Those two observations together suggest the rotation has further to run.”

Full disclosure: Tom Lydon’s clients own SPY.

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