Interested in where the “Weight of the Evidence” stands as we move into Q2 2026? Join NDW Senior Portfolio Manager John Lewis and Research Analyst Miles Clark, alongside Nasdaq’s Head of Investment Insights, Yanni Angelakos, for a discussion on key technical and fundamental insights shaping what looks to be a busy second quarter. The webinar is next Tuesday (4/7) at 1PM EST. CE Credit will be available. Register HERE

After outperforming the broad S&P 500 in each of the last three years (2023-2025) communications services has fallen behind many other sectors throughout 2026. This development has come largely at the hands of larger, more tech-focused names as broader market-wide trends have followed suit. While the sector as a whole hasn’t struggled to the magnitude of a sector like financials, there are several signs supporting the idea that there could be extended weakness emerging for the group, especially if the rotation towards value-oriented names persists. The sector does remain technically acceptable on broader sector ranking pages like DALI (included below) or the Asset Class Group Scores Page, where the sector ranks third and fourth respectively. Despite this longer-term strength/persistence, we have seen the magnitude of leadership drop off significantly as the sector has ceded strength to other areas.

XLC has declined roughly 5.5% so far this year, barely underperforming the broad market (SPX) throughout Q1 with a late March rally. While the longer-term technical picture for XLC remains defendable based purely on its 4.02 fund score, the fund recently returned to a sell signal on its default chart… its first since April of 2025. While the recent exhale has it in heavily oversold territory (like much of the market) the fund score has moved to its worst reading in roughly a year. While we might expect a range of resistance around the early 2025 highs to act as new support in the near-term, there is certainly a fair share of risk associated with adding new exposure here when considering how broader markets have rolled over. All this to say, keep an eye on your broad exposure within communication services.

Looking underneath the hood of XLC, there are a handful of household names with interesting technical pictures worth commenting on. Even after Tuesday’s intraday rally on news of potential easing of conflict in the Middle East, the likes of Google (GOOGL, GOOG), Netflix (NFLX), and Meta (META) still sit well off their relative highs from earlier this year. Pictured below, GOOGL has quite an interesting picture having registered a string of four consecutive sell signals on its default chart amid the recent exhale. While the search engine giant remains a technically strong option according to its TA score, it is still off about 9% so far this year with plenty of resistance above between here and ATHs at $348. Many readers will have average costs on GOOGL well below current levels. Keep this in mind when considering cutting positions… while technical deterioration certainly has occurred be wary of cutting exposure to a heavily oversold high TA stock. Another quick comment on the likes of META: it is not a weak attribute stock after falling nearly 20% in Q1. With the bounce on 3/31, it would classify for many as a “sell-on-rally” candidate. Again, it's worth mentioning many of you will have nice gains generated over the last few years- keep this in mind when trimming positions if trying to take some money off the table.

Trying to find replacement assets for these mega-cap core names can be difficult. First, as hinted on throughout the piece, the tax implications on outstanding legacy positions can be tricky to navigate. Second, taking an underweight position for names that hold large weightings in our core benchmark can feel like taking a “risky” stance, especially if things start to rip back to all-time highs as global conflict cools. In these kinds of scenarios, it is paramount to remember to remain objective in our decision-making process. Allowing a stock’s name to subtly guide our hand can lead us to make emotion-based decisions. Second, remember that momentum is a self-correcting factor. If cutting exposure to a sector/specific security is the “wrong” move, momentum will pick it back up again as new relative strength is established.

About a month and a half ago, we discussed the wide disparity between S&P 500 Index implied volatility and the average implied volatility of its constituents. In summary, the average stock implied volatility in the S&P was historically elevated relative to the index’s volatility. We called this a “rip tide market” as the market looked calmed from a distance but was much more violent once you got in the water (read more here). With the recent increase in the S&P 500 Volatility Index (VIX), we are now in the opposite situation where the spread between index implied volatility and average constituent volatility has collapsed down to attractive levels for equity investors. While we have seen market panic episodes in the past where the spread between average SPX stock implied volatility and SPX implied volatility headed even lower than it is today, a bounce is usually in order from these levels. Said another way, investors were underpricing insurance a month and a half ago and have now shifted to overpricing insurance.

The markets could certainly move down further, but for those looking to protect portfolios with puts now is not the time to do so. Secondly, we have yet to see major technical deterioration of domestic or international equities. Short and intermediate-term indicators are trading in or right at washed out territory. The Ten Week for the S&P 500 (^TWSPX) and the Bullish Percent for the S&P 500 (^BPSPX) sit at 20% and 32%, respectively. Like the volatility spread, both indicators can and have headed lower, but any reversals back into Xs would usually be a good buying opportunity. There is plenty of headline risk moving forward, but the market is in a good position for a bounce.

While there is a good setup for a bounce in the market, we still need to be on the lookout if that is not the case. Looking at the S&P 500’s (SPX) default chart, the next level of support is 6250. Below 6250, there is not any support until the 5800 to 5850 area. In terms of resistance, there are a few levels the benchmark needs to overcome: 6650 and 6800. Above 6800, the index is set up for test of its all-time highs at 7000. In other words, SPX has some technical repairs before bulls can feel confident even if a bounce does occur. Nonetheless, the dynamics in the volatility complex and low indicator readings shine a favorable light on a bounce in the short-term at least.

Daily Option Ideas for March 31, 2026