AT&T's Price Gap Changes the Strategy

 | Jul 27, 2017 | 8:40 AM EDT
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We reviewed the charts of AT&T Inc. (T) last Tuesday, and concluded that "Momentum has slowed and sellers are not being aggressive, but is that enough to have the $35.66-$35.31 support hold? Tuesday's new low close tells us to go slow despite the attractive yield." With hindsight, we can see that support did hold.

T gaped higher this Wednesday (yesterday) on expanded volume and closed above the declining 50-day moving average line. Not bad! Today's question is whether this strength is sustainable and should we look to be a buyer? Let's look at the updated charts and indicators.

In this daily bar chart of T, above, we can see the upside price gap and the volume surge. T closed near the highs of the day and above the 50-day moving average line. The declining 200-day line is still above the market around $39.60.

The daily On-Balance-Volume (OBV) line has been neutral for nearly three months, but the strong volume on Wednesday could start to turn the OBV higher. The Moving Average Convergence Divergence (MACD) oscillator turned upwards yesterday, with a cover shorts buy signal (a buy signal when prices are still in a downtrend).

In this weekly bar chart of T, above, the daily price gap disappears, but the indicators show improvement. T is still below the declining 40-week moving average line. The weekly OBV line shows an uptick and the weekly momentum study shows a large bullish divergence from October to July. The turn for T in late 2016 was a V-like reversal and this time around we could be seeing a repeat.

In this updated Point and Figure chart we can see a column of Xs showing the rally without the gap. The high trade since May is $38.61 on this chart and a trade to $39.00 would be a breakout and allow for an upside price target.

Bottom line: looking at the daily bar chart again we can see that Wednesday's is one of the biggest gaps. The gap may not get filled, but I would anticipate some sideways price action before T climbs higher. Assuming this sideways consolidation shows signs of further accumulation (buying), I would probe the long side of T on shallow dips. Unfortunately, because of the price gap, traders will have to risk a close below $36 for now.

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