Shares of media giant Viacom, Inc. (NASDAQ:VIAB) rallied Thursday as the recent oversold bounce for the stock continued.
The large media stocks are still in a world of pain after accelerating their drop this summer. However, price action as of late has begun to improve again, and VIAB stock could be on its way to a more meaningful mean-reversion move higher, through a multi-week/month lens.
It has been a long time coming for Viacom and other media companies like Twenty-First Century Fox Inc (NASDAQ:FOXA), and in late July/early August with earnings reports came about, the shares of these companies accelerated lower.
Concerns over the traditional cable television model crumbling as more of the population “cuts the cord” was spurred by a series of downgrades while stocks like Netflix, Inc (NASDAQ:NFLX), largely seen as the beneficiary from this movement, continued to rally. (Although NFLX stock too in recent weeks has come under pressure.)
While the outcome for the large media companies in my opinion remains largely unknown — considering their ability to invest in innovation either organically or with acquisitions makes it difficult to imagine they will go away altogether — new technology like Netflix is shaking things up in a serious way.
VIAB Stock Charts
Looking at the multiyear weekly chart of VIAB stock, we see that after dropping about 60% since the summer 2014 top the stock has now arrived at a band marked by the blue box that is full of price history stretching all the way back to the mid 2000’s. Note that while VIAB stock topped out in the summer of 2014 and began to slide, the price action over the past month and a half has steepened the slope as the stock accelerated the drop. When a stock goes from a moderate drop to a free-fall most often a good oversold bounce that lasts weeks if not months is not too far around the corner.
Also note the spike in volume over the past few weeks and the relative strength index (RSI) that recently hit oversold readings last seen in 2009.
On the daily chart note that given the recent sharp drop in VIAB stock, it remains largely disconnected from its medium-term moving averages, the 50, 100 and 200 day. This is also reflected in the MACD oscillator at the bottom of the chart, which remains deeply oversold. Over time a re-connect between these moving averages and price tends to play out after a sharp drop or rally in a stock, whereby price makes a good-sized counter-trend move and the moving averages get a chance to catch up lower, in the case of VIAB stock.
While a retest or even undercutting of the recent lows in VIAB stock cannot be ruled out this autumn, especially considering the heightened broader market volatility, investors could look to begin building a position around current levels in the low $40s for a move into year-end that may see the stock bounce back into the mid to high $50s.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
