CBS Corporation (CBS) is working hard to acquire Viacom, Inc. (VIAB), one of the weakest entertainment giants after years of Redstone family in-fighting and bad business calls. Viacom's failure to address the millennial cord-cutting phenomenon has affected viewership at key assets including Comedy Central, MTV and Nickelodeon. Meanwhile, CBS continues to outperform network peers but has had limited success realigning its rapidly aging demographics.

Viacom stock hit an eight-year low in November and has bounced into the second quarter of 2018 but remains well below resistance at the 200-day exponential moving average (EMA). CBS has taken note of Viacom's struggles, submitting an initial takeover bid at a price below market value. The all-stock offer could generate friction between the former partners, but Viacom's weak negotiating position could be the deciding factor when the dust finally settles.

CBS has a lot to gain by adding Viacom content to its impressive entertainment empire, with new assets having the power to expand revenues at the streaming All-Access initiative, started in October 2014. The service recently mounted 2 million subscribers, buoyed by the success of last season's "Star Trek Discovery," but it has a long way to go to match the 100 million-plus viewership of Netflix, Inc. (NFLX). (See also: CBS, Viacom Form Special Committees to Explore Merger.)

CBS Long-Term Chart (2006 – 2018)

The network's latest public incarnation began in the mid-$20s in 2006, generating a rally that topped out just above $35 in July 2007. A steady pullback accelerated during the 2008 economic collapse, dropping the stock to an all-time low at $3.06 in March 2009. The subsequent recovery wave unfolded at the same trajectory as the prior decline, completing a round trip into the 2007 high in June 2012.

A 2013 breakout caught fire, generating a healthy trend advance that reached $68.10 in March 2014. The stock then entered a multi-wave downtrend, buffeted by the exodus of millennial viewers out of traditional broadcasting venues into online streaming services. The decline relinquished nearly half the gains posted between 2009 and 2014 before coming to rest in the mid-$30s in September 2015.

A steady uptick reached resistance at the 2014 high in February 2017, but a breakout attempt failed two months later, giving way to a major downturn that reached an 18-month low in late March. The monthly stochastics oscillator flipped into a new buy cycle in January 2018, but so far at least, those signals haven't translated into higher prices. Even so, this tailwind is likely to gather strength in the coming months, with Viacom negotiations generating a potentially bullish catalyst.

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CBS Short-Term Chart (2015 – 2018)

The sell-off into 2015 ended at 2013 breakout support, generating three rally impulses into the 2017 high. The stock then sold off in three selling impulses, finding support at the .618 Fibonacci rally retracement level in March 2017. That level also marked strong support at the lows posted in the second half of 2016, providing a stable platform for a fresh recovery wave. However, potential gains appear limited at this time, with strong resistance in the upper $50s likely to slow or stall progress following a Viacom acquisition.

On-balance volume (OBV) remains stuck well below the 2014 peak, failing to recover fully after the downtrend into 2015. However, it has acted surprisingly well in recent months, holding near monthly highs even though the stock price has dropped more than 15 points in the past year. This bodes well for a rally if the companies strike a deal because the resilience suggests a large population of speculative capital. (For more, see: CBS Tops Estimates as Licensing Business Grows.)

The Bottom Line

CBS has entered merger negotiations with former spouse Viacom, with Wall Street analysts expecting the combined operation to compete more forcefully in the traditional broadcasting sector. (For additional reading, check out: The Contrarian: Does CBS Make Money or Not?)

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