has come a long way since its benign monopoly was
by court order in 1982. Indeed, today's company bears little resemblance to the original after three decades of spinoffs, mergers and acquisitions. In addition, the 2010 AT&T is a direct offspring of SBC Communications, rather than the original Bell System or any of its other former incarnations.
Whatever its origins, the current AT&T has major problems, long and short term, starting with
iPhone exclusivity that will end in 2011 or 2012, depending on which news source you trust. In any case, there's little likelihood that contract will be renewed, considering massive complaints about network performance from the very picky Apple population.
Shorter term, the company must compete in a commoditized industry, in which cheap contracts and free phones are now business as usual. Even a best-of-class communications giant like
is having a tough time growing profits in this environment, and this is reflected in its stock price, which is hovering at late-2008 levels despite last year's recovery.
Let's examine AT&T's performance in the past two decades, with an eye on opportunities that might develop in the next six to 12 months. I'm using pre-2005 data that's unaltered by the SBC acquisition. This view amplifies price movement prior to that merger date, but I believe it more accurately depicts historic support and resistance levels.
AT&T surged higher in a powerful rally between 1984 and 1999, splitting three times and rewarding investors with shares of multiple spinoffs. It topped out in September 2001 at a price level that hasn't been challenged in nearly nine years. The stock then ground out a two-year double-topping pattern, with support near $55, and broke down (blue line) in April 2002.
The subsequent decline bottomed out near $19 in early 2003 and gave way to a dead-cat bounce that left price churning within its early-2003 trading range (red lines) for over three years, despite a massive recovery in the broad market. This underperformance signaled a major lost opportunity, because it coincided with an explosion in cell-phone and other mobile network communications.
The stock emerged from the long-term trading range in September 2006, just six months before the opening round of market volatility triggered by the eventual collapse of the housing market. Heading higher into that vortex, it isn't surprising that the uptrend topped out just 15 months after it began and gave way to another topping pattern.
That sideways action continued into July 2008, when AT&T broke support at $33 (blue line) and entered a vertical decline along with the broad market. The old trading range (red line) supported the volatile downswing, with price finally bottoming about 2 points from range support in October 2008, and then jumping almost 10 points in the next two months.
A funny thing happened next. Just as in 2003, the stock went dead as a doornail and dropped into a triangular trading range that looked remarkably similar to the prior event. This fractal pattern remains in place, with the stock swinging between the October 2008 low at $20.90 and the December 2008 high of $30.65.
AT&T pays a healthy dividend, which in my mind is the only reason that shareholders have to stick with this underperforming stock. But wouldn't it be nicer to hold a dividend-paying stock that also has a decent-looking chart? Of course it would, and there are alternatives that will reward investors with appreciation, as well as quarterly checks.
The stock topped out at a 52-week high near $29 in January of this year, and pulled back in a lazy decline that bounced off triangle support (blue line) in May. It rallied just 2 points off that level and rolled over in last week's vertical selloff. Unfortunately, this opened the door to another test at support and a possible breakdown.
There are interim support levels between a triangle breakdown near $24 and the bear market low near $20, so I wouldn't expect a fast or persistent decline. But the violation still denotes a major negative given the stock's relatively poor performance in the last year. It also opens the door to a decline that might reach the 2003 low at $18.85.
Now go back and look at the monthly chart one last time. You can see that a selloff into the seven-year low would also complete a massive double-top pattern (green line). This is extremely dangerous, because a breakdown at that level would predict a secular downtrend that could eventually drop this American icon into single digits.
Alan Farley provides daily stock picks and commentary with his "Daily Swing Trade" newsletter.
At the time of publication, Farley was long AAPL, although holdings can change at any time.
Alan Farley is a private trader and publisher of
Hard Right Edge
, a comprehensive resource for trader education, technical analysis, and short-term trading techniques. He is also the author of
, a premium product from TheStreet.com that outlines his charts and analysis. Farley has also been featured in
. He has written two books:
, due out in April. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.
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