T Stock Is Technically Perfect
The other morning, as I was doing my daily scan for stocks that were on the move, I stumbled upon AT&T Inc. (NYSE:T) stock, and I was quite surprised.
AT&T stock contains certain characteristics that I look for in a potential investment. These characteristics are used to generate an investment view that is either bullish or bearish, indicating my belief that the stock price will either appreciate or depreciate. After studying the price chart, I have come to the conclusion that the bullish trend in T stock is intact and that higher stock prices are likely.
Using a price chart to generate an investment view is within the context of technical analysis. This method of investment analysis is based on the notion that historical price and volume data can be used to discern trends and forecast future stock prices. I have been using this method for nearly two decades and I have had great success in applying it to my trading strategies.
The following stock chart illustrates the bullish price action that has driven AT&T shares since inception.
Chart courtesy of StockCharts.com
AT&T stock has had some bumps in the road in terms of stock performance, but this price has consistently remained constructive.
Constructive price action is based on the wave structure that is contained within it. This wave structure consists of impulse waves that serve to advance the price, and consolidation waves that serve to unwind overbought conditions and set up the next advancing impulse wave. Constructive price action creates order, and this is the foundation of a sustainable trend.
On the monthly AT&T price chart above, the impulse waves are highlighted in green, and the consolidation waves are highlighted in purple. These waves have taken many years to develop and, on average, they have lasted over a decade. In 2012, T stock exited the consolidation pattern in an upward direction, which is highlighted as a “breakout” on the above price chart. This indicated that the consolidation wave was complete, and that a new impulse wave was in development. This price action suggests that the long-term trend is clearly geared toward higher prices.
The moving average convergence/divergence (MACD) indicator in the lower panel of the chart is an efficient and effective trend-following indicator that uses signal-line crossings to distinguish between bullish and bearish momentum. This indicator has been instrumental in confirming the intermediate-term trends in AT&T stock.
A bearish cross was generated in 1999, 2008, and 2013, indicating that bearish momentum was propelling T stock and, as a result, the path of least resistance was geared toward lower prices. This indicator smartly confirmed the notion that lower prices were set to prevail, and it would have proven wise to avoid this investment when a bearish cross was engaged.
This same indicator produced a bullish cross in 2003, 2009, and 2015, indicating that bullish momentum is propelling AT&T stock and that, as a result, the path of least resistance was geared toward higher prices. This indicator proved once again that, when a bullish cross is engaged, higher prices will prevail. The indicator also implied that being long on the stock is the best course of action.
A bullish MACD signal is still engaged, and higher prices can be expected. The price pattern that is illustrated on the price chart below supports this bullish view.
Chart courtesy of StockCharts.com
Since summer of last year, a technical trading pattern known as a “cup & handle” has been in development. This pattern contains two troughs and a horizontal level of resistance. The first trough is deep and creates the “cup,” while the second trough is shallow and creates the “handle.” The horizontal level of resistance is defined by the price level that has thwarted the price in its attempt at moving beyond it on the previous two occasions.
This pattern is finally completed when the price penetrates and closes above this level of resistance.
A completed cup & handle pattern is constructive on many fronts. Not only does a completed pattern point to higher prices, but it also produces a potential price objective. This price objective is obtained by measuring the depth of the cup and extrapolating the number above the horizontal level of resistance. Applying this method to the chart above produces a price objective of $49.00.
The cup & handle is near completion, and the current indicators that are currently engaged support the notion that this pattern will break to the upside, and that higher prices will prevail.
Bottom Line on AT&T
The constructive price action on the AT&T stock chart is suggesting that the trend toward higher prices is still in development, and that a trend-following momentum indicator supports this view.
A technical pattern is currently in development and, upon completion, will reinforce the notion that higher T stock prices are likely to follow. As a result, I am bullish on AT&T, and I will continue to hold this view until indications on the price chart suggest that another view is warranted.