Trade of the Day: TMUS Stock Looks Ripe for a Short Sale

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T-Mobile US Inc (TMUS) — I featured TMUS stock as the Trade of the Day on May 5, recommending readers buy shares under $33.50 with a target of $39. In addition to its bullish chart, the wireless provider had extended its disruptive “Uncarrier” campaign to business customers, reported better-than-expected sales and earnings and been the subject of upward analyst revisions.

The trade worked out perfectly and we booked a gain of more than 16% in less than a month. However, now I see an opportunity to make a profit on the short side.

After a number of strong quarters, the company issued a weak report in late October. Third-quarter revenue increased 7% year over year to $7.8 billion but missed the consensus estimate of $8.3 billion. Earnings of 15 cents per share were up from a loss of 12 cents a year ago, but the Street had expected 30 cents. The number of subscribers added in the quarter and average revenue per postpaid phone customer were also below expectations.

TMUS stock has formed a rounding top with several sell signals from my internal indicator, the Collins-Bollinger Reversal (CBR). Thursday’s close at $37.73 is just above support at $37.10, the 200-day moving average and a support line drawn from May. Higher volume on down days than up days confirms the stock will likely break these support lines.

Sell TMUS short on a break below $37 with a target of $31 for a potential gain of 16%. A stop-loss order should be entered at $40. And check with your broker for any unusual restrictions on shorting this stock.

TMUS Stock Chart
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