Chart of the Day: Verizon

The telecom sector is back in vogue.

Verizon Daily

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After the blow-ups in this group following the "tech wreck" of the 2001 bear market, the telecom sector stands in the forefront of this rally and is delivering on some of the promise of the late-1990s telecom bull market.

There has been a strong resurgence in the wireless names as well as significant recoveries in the legacy carrier companies such as AT&T(T Quote) and Verizon(VZ Quote), which were left for dead in the last bear market. The recovery in the sector has been fueled by an upswing in fundamentals driven by an expansion of wireless and legacy phone services as well as an ever-increasing demand for bandwidth as the demand for data services continues to grow at an exponential rate. Investors should also consider that excess supply has been shaken out of the sector and weak players in the group are gone after the 2001 bear market.

Liquidity flows into the sector have strengthened since last summer, particularly in the wireless stocks. Wireless breadth continues to make new highs and shows a broad-based and healthy rally developing within that sector. Wireless growth appears to be the main driver behind the recovery of telecom as a whole, and I suggest viewing the group from this perspective. Telecom equipment has not participated in this rally and it is the weak spot within the broader telecom group. Liquidity has flowed away from the telecom equipment stocks steadily and the stocks have been weak, which suggests that carriers have excess capacity at the moment after the wave of consolidation in the industry over the last five years.