Verizon Communications (VZ) gapped higher on Wednesday as traders reacted to the news that Warren Buffett (Berkshire Hathaway (BRK.A) BRK.B) had purchased a stake in the company. Trading volume had increased in December and January but that does not seem like a "tell" of his actions.
Let's check out the charts and indicators of VZ to see if this move makes sense technically.
(For more, see Does Warren Buffett's Verizon Buy Make Sense?)
In this daily bar chart of VZ, below, we can see that prices have been in a downtrend from early December. Prices have just rallied to the underside of the declining 50-day and 200-day moving average lines.
The trading volume has surged on the Buffett news but the trend on the On-Balance-Volume (OBV) line is still down. The traders who did the buying for Buffett did not show their hand.
The Moving Average Convergence Divergence (MACD) oscillator was in a bearish alignment and only recently crossed to the upside for a cover shorts buy signal.
In this daily Point and Figure chart of VZ, below, we can see the most recent column of X's but the charting software is still projecting a potential downside price target in the $48 area. Interesting.
Bottom line strategy: Warren and I are on opposite sides of the coin of investing. He will be a buyer in weakness and focuses on the long-run fundamentals. I am focused on the technicals and prefer to buy strength. I am open to a purchase of VZ but the charts have to show me a lot of improvement. Warren is on his own for now.
