AT&T Inc. (T) stock entered 2017 on a high note, trading near a nine-year high, but it has lost significant ground in recent months. The shares fell nearly 15% to a two-year low in the low $30s in November, while a bounce into December has reached major resistance that could set off aggressive sell signals, alerting short sellers to a low-risk opportunity that could build strong profits in the first half of 2018.

Improving sentiment has deteriorated since the Justice Department sued to block the company's $85 billion bid for Time Warner Inc. (TWX) in late November. A trial is scheduled for March 2018 but could drag on into the second half of next year, distracting AT&T from much needed efforts to underpin its lagging stock price. For starters, the dispute ties up capital that can't be used for stock buybacks after tax cuts deliver a cash windfall to America's corporations. (See also: Tax Reform's 7 Biggest Stock Winners.)

T Long-Term Chart (1990 – 2017)

A multi-year uptrend ended at $30.13 at the start of 1996, giving way to a rounded correction that found support in the low $20s a few months later. AT&T returned to resistance in June 1997 and broke out in October, entering a final rally wave that posted an all-time high just below $60 in 1999. The stock tested that level three times into the end of 2000, building a long-term top ahead of a 2002 breakdown and downtrend that picked up steam into the 2003 low at $18.85.

The stock underperformed in the first half of the mid-decade bull market, stuck in a trading range between the mid-$20s and bear market low. It finally turned higher in the second half of 2016, lifting into broken top resistance in the low $40s, where the rally ended in October 2007. A steep downturn during the 2008 economic collapse wiped out those gains, dumping the stock within two points of the 2003 low in November.

A slow-motion uptick stalled in the upper $30s in 2012, while the subsequent decline held within a nine-point range into the August 2015 low. The stock turned sharply higher into 2016, breaking out above the 2012 high in June and reaching the 2007 high just one month later. It reversed at that resistance level and failed a January 2017 test, generating a downturn that is still in force more than 11 months later. (For more, see: The Top 4 AT&T Shareholders.)

T Short-Term Chart (2015 – 2017)

The stock broke out above a three-year trendline of lower highs in February 2016 and finally completed a 100% retracement into the 2007 high in July. A decline into December ended at support, generating a sturdy bounce that fell short of the prior high one month later. The stock tested the trendline once again in November 2017, triggering volatile whipsaws that are still in progress as we wrap up the trading year.

Price action between July 2016 and October 2017 carved a descending triangle, with support above at the trendline. A breakdown ended at a two-year low in early November, followed by an oversold bounce that is now testing triangle resistance in the upper $30s. That level has also aligned with the 200-day exponential moving average (EMA) and .618 Fibonacci sell-off retracement level, raising odds for a decline that eventually breaks the trendline and 2017 low.

On-balance volume (OBV) tested the 2015 high in June 2016 and turned lower, entering a distribution wave that has posted lower highs into the fourth quarter of 2017. The indicator hit a three-year low in October and may now print the next lower high in the long series. Long-term support under the November low could then come into play, raising odds for a breakdown that generates a multi-year downtrend. (See also: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

AT&T has rallied into resistance after breaking support in the upper $30s in October. Short sellers may pounce on this bounce, generating a reversal that brings multi-year support into play in coming months. (For additional reading, check out: AT&T and Time Warner Say Proposed Merger Is 'Pro-Consumer'.)

<Disclosure: The author held no positions in the aforementioned securities at the time of publication.>