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Trading AT&T and Discovery After $43 Billion Media Merger

AT&T and Discovery have come to terms on a $43 billion media deal. Here are the key levels for both stock as shares remain volatile.

AT&T  (T) - Get AT&T Inc. Report and Discovery  (DISCA) - Get Warner Bros Discovery Inc Com Ser A Report made headlines on “Merger Monday,” but with a bit of a twist.

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

The news is not sitting well with Disney  (DIS) - Get The Walt Disney Company Report and Netflix  (NFLX) - Get Netflix Inc. Report, which were both down around 2% on the day. 

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.

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Trading AT&T

Weekly chart of AT&T stock.

Weekly chart of AT&T stock.

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.

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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.

Trading Discovery

Daily chart of Discovery stock.

Daily chart of Discovery stock.

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.