AT&T (T) - Get Report has been in recovery mode since trading as low as $26.80 on Dec. 26. The stock rallied to its 2019 high of $38.75 on Sept. 11,  where profits could have been taken at its annual risky level for 2019 at $38.53. My call is to sell strength to $38.53 or on a price gap below its semiannual and monthly pivots at $36.58 and $36.38, which held on Wednesday morning, Sept. 18. The downside risk is to the 200-day simple moving average at $31.94 and its quarterly value level at $30.34. The weekly chart shows that the stock is an "inflating parabolic bubble" formation, which indicates downside risk of 10% to 20% over the next three to five weeks.

AT&T has positive near-term statistics! The stock closed Tues., Sept. 17, at $37.16, up 30.2% year to date and up a bull market 38.7% since trading as low as $26.80 on Dec. 26. The stock is just 4.1% below its 2019 intraday high of $38.75 set on Sept. 11. Longer term,  the stock is consolidating a huge bear market decline of 68% from its Oct. 2000 high of $59.00 and its March 2003 low of $18.85. The stock is fundamentally cheap with a P/E of 10.80 with a dividend yield of 5.38%.

Wall Street is touting three reasons to buy AT&T ahead of its third-quarter earnings to be released on Oct. 23. Their opinion is that the telecommunications giant offers premium media and entertainment content, Pay-TV and traditional phone services which makes the stock a bet on a global economic recovery. The bulls feel that the stock will survive the trade war with China and the cooling housing market to which is products are sold. AT&T investors are betting that fans of Apple (AAPL) - Get Report products will be lining up at Apple stores to buy the newest iPhones even though they are not usable in the coming G5 revolution.

Here's coverage of AT&T as CEO Randall Stephenson addressed activist pressure at the Goldman Sachs telecom and media conference on Tuesday, Sept. 17.

AT&T has been facing a class-action lawsuit that alleges that it inflated the subscriber growth for its Direct TV Now streaming service. This potentially false activity may have accounted for much of the recent share price strength.

This morning Wall Street bankers have been lining up to submit various proposals to AT&T to sell off its troubled DirecTV unit, including one involving Dish Network as the potential suitor. 

AT&T is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AT&T? Learn more now.

The Daily Chart for AT&T

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Courtesy of Refinitiv XENITH

The daily chart for AT&T shows the formation of a "golden cross" on May 21 when the 50-day simple moving average rose above the 200-day simple moving average, indicating that higher prices lie ahead. Under this buy signal, investors could have bought the stock at its 200-day SMA at $31.20 on May 31. This signal tracked the stock to its 2019 high of $38.75 set on Sept. 11. The annual risky level has been in play all year long and was finally tested on Sept. 11. Its semiannual pivot for the second half of 2019 is $36.58 with its monthly pivot for September at $36.38. It's quarterly value level lags at $30.34. The stock is above its 50-day and 200-day SMAs at $34.76 and $31.94, respectively.

The Weekly Chart for AT&T

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Courtesy of Refinitiv XENITH

The weekly chart for AT&T is positive but overbought with the stock above its five-week modified moving average of $35.59. The stock has been above its 200-week simple moving average or "reversion to the mean" at $36.07 since the week of Sept. 6. The 12x3x3 weekly slow stochastic reading is projected to slip to 90.12 this week down from 92.36 on Sept. 13. The reading above 90.00 puts the stock in an "inflating parabolic bubble" and bubbles almost always pop with declines of 10% to 20%, or more over the next three to five weeks.

Trading Strategy: Sell strength to its annual risky level at $38.54 or on a sell stop on a close below its semiannual and monthly pivots at $36.58 and $36.38, respectively. Buy weakness to its quarterly value level at $30.34.

How to Use My Value Levels and Risky Levels:

Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based upon the closes on Dec. 31. The original annual level remains in play.

The weekly level changes each week. The monthly level changes at the end of each month, the latest on Aug. 30. The quarterly level was changed at the end of June.

My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already.

To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.

How to Use 12x3x3 Weekly Slow Stochastic Readings:

My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.

The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.

The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.