Stocks were on fire on Monday. Bulls cheered as the major indexes gained nearly 2%. Bargain hunters were out in force, and we could see some follow-through as the week unfolds.
But before you get drawn into the bullish optimism that permeated the market on Monday, consider that the S&P 500 is still 18% below its all-time high. The market peaked on Jan. 3, the first trading day of the year, and has been trending lower ever since.
Take a look at the major indexes. The S&P 500 is trapped within a bear channel that began in early April (diagonal lines). The large-cap index needs to close above 4025 to break out of this bearish formation.
Friday's low of 3810.32 was just 10 points shy of 3800, the level the charts indicated the index would reach on Feb. 22. We could still reach that level.
The Nasdaq 100 has formed a similar pattern. The tech-heavy index needs to climb above 12,600 to break free of its bearish trend.
Despite Monday's rally, both indexes are just a handful of points from their respective year-to-date lows. The price action on Monday was typical of a bear market rally.
It's going to take more than a few strong days to repair the damage these charts have suffered, but despite the markets' bearish tone, there are a few stocks that look good right now. Perhaps the most surprising of these names is AT&T (T) .
Last October, I shunned this stock at $25. By December, AT&T had fallen to $16.62, in a market that was trading near all-time highs.
This year, AT&T is trouncing the major indices by a wide margin, gaining 11.59% year-to-date. Check out the relative performance of AT&T (blue) vs. the S&P 500 (green), the Nasdaq 100 (black), and the Russell 2000 (red) since April 1.
AT&T has formed a cup and handle pattern. This bullish formation projects a return for the stock to the $25 area.
Charts by TradeStation
Unlike the major indexes, AT&T is trading above its 50-day (blue) and 200-day (red) moving averages. Those moving averages are on track to cross over, which would create a bullish momentum signal.
AT&T cut its dividend in February. Despite this, the stock currently offers a yield of 5.35%. AT&T's recent bullish performance tells us that the market believes the dividend is safe. Based on the chart, I'm targeting $25 for AT&T, a gain of over 20% from Monday's close.
