AT&T (NYSE:T) just completed its best rally since mid-May. The six-day jump shattered multiple resistance zones while carrying T stock higher by as much as 14%.
Spectators waiting for the sinking ship to finally bottom are left to wonder if the low is in. To that question and any other forecasting query, today’s article will help.
We’re going to break down what sparked the surge and whether or not it changed the technical posture of the long-term downtrend enough to justify buying.
Let’s start with this. If you’re an existing shareholder looking for someone to thank for the Christmas gift, send some love to Simon Flannery.
T Stock: Of Upgrades and Price Targets
Cast your eyes on the AT&T stock chart further down in this article, and you’ll discover that Dec. 16 was the day that changed the downtrend. Some 113 million shares changed hands, marking the second-highest volume day since AT&T first announced its media merger with Discovery Communications (NASDAQ:DISCA) back in May.
The catalyst for bulls’ sudden return was an upgrade by Morgan Stanley (NYSE:MS) analyst Simon Flannery. To back up his optimism, Mr. Flannery argued combining the companies media assets with Discovery would make the tattered telecom company “a much clearer and focused communications business.”
Father Time will have the final say, but the announcement made waves. Shorts crammed, and opportunistic bulls pounced, delivering the aforementioned double-digit percentage pop.
Morgan Stanley updated their rating to “overweight” from “equal-weight” while adjusting the price target down by $4 to $28 a share. While an upgrade with a lowering of the price target may sound fishy, the reality is that T stock has fallen so far since the investment bank’s last update that a drop in the forecast was all but guaranteed.
Remember, when the upgrade hit the wires, AT&T shares were languishing near $22, so shooting for $28 left nearly 30% of potential upside (27.3%, to be exact).
As a technician, I care less about the nuances of the news and more about the impact on the price chart. So let’s take a closer look to see what has changed over the past two weeks.
A Look at the Chart
The weekly time frame shows just how far AT&T shares have fallen. From 2016’s peak, prices fell approximately 50%. This halving has transpired, mind you, during one of the greatest bull markets in history.
In fairness, shareholders have pocketed many dividends along the way, but not nearly enough to offset such a dramatic decline. Momentum on the last downswing increased heavily as well, so it’s not as if the trend was slowing before this month’s rebound.
The current rally still looks like a potential dead-cat bounce for all of these reasons. We remain below the falling 20-week and 50-week moving averages.
Signs of Hope for T Stock
In summary, while it’s possible we score a V-shaped recovery, the sheer amount of overhead resistance suggests it could take time to reverse the bigger downtrend.
That said, the daily chart does give hope.
First, the buying has been relentless since the upgrade. Previous to this, the stock couldn’t rally for more than a session or two before falling anew. Now, we’ve ripped higher for six straight days.
Second, the high volume accompanying the bottom suggests big buyers entering the fray (or potentially, big sellers exiting).
Third, we’re back above the 50-day moving average for the first time since early May.
Though the weekly trend hasn’t changed, the daily has. For the first time in a long time, buyers have control of the short-term trend.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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