Rather than a typical M&A deal, AT&T has agreed to merge its media assets (including HBO and HBO Max) with Discovery in a $43 billion deal.
With the momentum in streaming right now, combining multiple brands together should ultimately create a more powerful platform. HBO Max has done well for AT&T, so adding Discovery to the mix should only help fuel its growth.
The market’s reaction is a bit more of a mixed bag though.
AT&T stock was up more than 5% at one point on the day. Now the stock is up just 60 basis points.
Discovery was up more than 17% in premarket trading and up 11.5% at one point in Monday’s regular-hours trading session. Now it’s down almost 4%. Let’s look at the stocks.
The stock is fading from Monday’s highs and investors likely aren’t too happy that the company plans to cut its dividend as a result of the deal. However, when considering how much free cash flow comes from Time Warner, it’s not much of a surprise.
In any regard, the stock’s early push on Monday morning finally sent it over the summer high of $33.24. AT&T also cleared its 200-week moving average for the first time since the coronavirus selloff in the first quarter of 2020.
However, those accomplishments have been short-lived. At least for now, with the stock back below both measures.
On the downside, I want to see the $31.90 level act as support, along with the 21-month moving average.
Below puts the 10-week moving average back in play, followed by a potential test of $30. If the selling pressure really picks up, the 50-week moving average could be on the table.
On the upside, I want to see a push back through $32.25. That will put the May high back in play, followed by a potential rally to the $34.50 to $35 area.
The setup with Discovery is much more discouraging. Not only has this stock been crushed from the 2021 highs, it’s giving up a lot more gains on Monday.
Not to mention, we’re getting a bearish engulfing candle on the daily chart (it’s on the weekly chart too, but there’s still a lot of time left in that candle).
The decline is sending Discovery right down to the 200-day moving average, a measure it had not tested amid its recent slide.
That has some attractiveness to it, but the overwhelming selling pressure here is too much of a turn-off. Traders need to see some stability, followed by a rotation higher so that they have a low to measure against.
In this case, if the 200-day moving fails to support the stock, the $29 to $30 range could be in play, as well as the 21-week moving average.
On the upside, reclaiming the 10-day moving average would be constructive, potentially putting the $38 area in play, followed by the 10-week moving average.
As it stands though, this is not a pretty chart. Without any rotations in play and without any oversold divergence, there's not a lot for bulls to latch onto at the moment, except for the 200-day. Many will want more than that.