From the desk of Tom Bruni @BruniCharting
The new 52-week high list has been pretty scarce as of late, but Verizon’s earnings announcement propelled its stock above an important level of resistance to 17-year highs, signaling further upside may be be ahead.
Below is the daily chart of Verizon, showing a choppy 5-year range in the stock between 42 and 56. Prices have been flagging tightly at the top of this range for the better part of three months and have now gapped up and closed above the 2016 highs at 56.50. With momentum in a bullish range and the 200-day rising, the positioning of this gap suggests that it is a breakaway gap and that a new uptrend is beginning.
Click on chart to enlarge view.
If this is a breakaway gap we want to see prices see immediate follow-through or at least consolidate at current levels, with little to none of the gap below being filled. With that said, as long as prices are above 56.50, we can be long with an initial upside target near 65.
I know it’s only Tuesday, but I’m using this weekly chart to provide some context around this move. The stock has gone essentially nowhere for the last twenty years, but if this breakout holds then prices are likely to retest their 1999 highs near 69.50 over the intermediate or long-term.
In addition to its action on an absolute basis, Verizon is also breaking out to 18-month highs relative to the Dow Jones Industrial Average as momentum moves firmly into overbought territory.
This base in this ratio formed right at the 161.8% extension of the 2010-2013 counter-trend rally and conditions suggest there’s another 13% of upside before potential resistance at former support comes into play.
The Bottom Line: In this challenging market environment, we continue to see rotation into the more defensive areas of the market like large and mega-cap Telecom, Utilities, and Healthcare. Verizon is breaking out on an absolute and relative basis and has a 4.40% dividend yield to boot, suggesting it may continue to be the beneficiary of money flows if equity markets in the US and around the globe continue to struggle.
If prices are above the 2016 highs of 56.50, the reward/risk in Verizon is very much skewed in favor of the bulls.
Thanks for reading and let us know your thoughts!