AT&T Appears to Have Topped Out -- Here's How to Trade It Now
AT&T (T) - Get Report has been retreating since Tuesday morning. The stock began this week with a downside reversal, extended the loss on Wednesday and was hit with a downgrade yesterday. AT&T closed Thursday with a 1.85% loss, putting it in the number two spot on the S&P 100's loser list.
This three-day drop is likely just the beginning of what could develop into a steep pullback. Patient investors may see lower entry opportunities in the coming weeks.
Click here to see the below chart in a new window.
In early June, AT&T ended a narrow 12-week consolidation pattern with a powerful upside breakout. A new bull leg began on June 7 after the stock closed above the March/May highs. The rally that followed was nearly straight up. Even the Brexit panic wave was unable to slow the ramp.
As last month came to a close, AT&T had gained over 12% from the June low and had moved well into overbought territory. This didn't stop the stock from putting in a higher high on July 1, but the action since then has shown the stock's upside momentum to have been completely used up. It may take a significant pullback to work off the overbought moving average convergence/divergence indicator before the huge bull move off the January lows can resume.
In the near term, AT&T bulls should keep a close eye on the $41.30 area. This is the initial support level and is marked by the Aug. 27 Brexit low. The stock will have clearly broken the lower band of its June bull channel by then, so a hold here will be a positive sign. If the $41 area fails to hold, investors should expect the stock to revisit major support near the $39.60 area. This key zone includes the March and April highs as well as the one-third retracement of the stock's 2016 range. Just above is the 50-day moving average. A drift down to this level will return the MACD indicator back to a more neutral reading. Patient AT&T bulls should consider purchases near this zone as a very low-risk entry opportunity.
Of note, AT&T is scheduled to report its second quarter earnings results on July 21.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long T.