Verizon Could Retrace Half of Its Decline Since January

 | Jul 27, 2017 | 10:22 AM EDT
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Verizon Communications Inc. (VZ) is rallying this morning. Prices could close well above the declining 50-day moving average line. It was only a month ago, that VZ shares looked weak and we concluded that, "VZ may not break the May low immediately but it looks like it will do it at some point. It will take a rally to $48 to suggest that the decline has run its course."

With our 20/20 hindsight glasses we can see (chart below) that VZ did break its May lows earlier this month. With prices for VZ trading around $46 before the opening and rising, a fresh look is warranted.

In this daily bar chart of VZ updated through Wednesday's close, we can see that prices firmed after the early July weakness. As noted above, VZ is probably going to close above the declining 50-day average line. The daily On-Balance-Volume (OBV) line has improved in July and suggests that buyers are a bit more aggressive.

The most important technical clue on this chart is the bullish divergence between the lower lows in price in May and July and the higher lows from the 12-day momentum study. This bullish divergence tells us that momentum was slowing into the July low and this could have been created by scale-down buying by forward-looking investors.

This weekly bar chart of VZ, above, does not show a lot of technical improvement. Prices are still below the declining 40-week moving average line. The weekly OBV line shows some improvement this month and the Moving Average Convergence Divergence (MACD) oscillator has narrowed slightly toward a potential cover shorts buy signal.

This Point and Figure chart of VZ, above, shows the price activity through Wednesday. The high trade of $46.65 will be the key trade to watch. A trade at $47.12 will be a breakout and allow for an upside price target to be projected, but gains may be hard as there is considerable overhead resistance.

Bottom line: VZ could rally in the days and weeks ahead to the $49 area or a 50% retracement of the decline from January. When prices reach that area we will have to check the charts again. Meanwhile, if you trade VZ from the long side I would suggest a sell stop at $43.

(Real Money's Ken Goldberg recently recently predicted a monster rally for Verizon. Read his take here.)

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