T-Mobile US, Inc. (TMUS) shares surged above a 15-month trendline this week in reaction to a New York Post report that suggested easy sailing for the telecom giant's proposed merger with Sprint Corporation (S). A second take on the news raised doubts about regulatory intentions, but the stock held its ground, exhibiting relative strength that could presage a breakout above the 2017 bull market and all-time high at $68.88.

Sprint stock turned higher as well, but the company faces many layers of overhead supply, indicating that its larger and more profitable suitor will likely generate stronger upside. In addition, a government decision isn't expected until 2019, allowing speculation to control price action instead of facts or spreadsheets. The setup is often a money maker with controversial acquisitions and mergers, taking pressure and eyeballs off quarterly performance. (See also: How T-Mobile-Sprint Deal Will Change Telecom Arena.)

TMUS Long-Term Chart (2007 – 2018)

 

T-Mobile's former incarnation came public as MetroPCS in April 2007, adopting the current T-Mobile brand and price chart through a 2013 merger arranged by German parent Deutsche Telekom AG (DTEGY). The IPO opened at $25.10, attracting immediate buying interest that peaked at $40.87 in July 2007. That marked the highest high for the next eight years, ahead of a downtrend that accelerated during the 2008 economic collapse.

It bottomed out at $5.52 in February 2010, nearly a year after the bear market ended, and bounced to 2009 resistance in the upper $20s in the first half of 2011. Aggressive sellers took control into 2012, generating a successful support test that completed a multi-year double bottom reversal. The stock surged above the 2011 high in May 2013, right after it posted a one-for-two reverse split needed to complete the PCS merger.

The uptrend reached the prior decade's high in 2014, yielding a pullback, followed by a June 2015 breakout that generated a series of new highs into May 2017's all-time high at $68.40. The stock then entered a multi-wave correction, finding support in the mid-$50s in November. A June 2018 test at that level attracted committed buyers, while the uptick into August has pierced the correction's trendline of lower highs. (For more, see: T-Mobile 'Unstoppable,' Will Rally 20%: Guggenheim.)

TMUS Short-Term Chart (2017 – 2018)

 

Highs posted between August 2017 and April 2018 have also carved a horizontal resistance line around $66. This week's buying surge reversed at that level, reinforcing the next line in the sand for bullish power. The barrier isn't likely to break before a multi-week consolidation and testing period that may include several failed breakout signals. A decline into the bottom of the filled April 20 gap between $63 and $64.50 could mark a low-risk buying opportunity in that scenario.

On-balance volume (OBV) ended a multi-year accumulation phase in May 2017 and rolled over into November. It surged to a new high in April 2018 and reversed at the same time the stock reversed at the horizontal resistance line. The indicator is now ticking back toward that level, perfectly in sync with price action, signaling a balanced tape that could still generate active selling pressure.

As a result, it makes sense to stand aside here and wait for a breakout above $66 or a decline that shakes out market players who jumped in after the New York Post report. A reversal at the bottom of the filled gap near $63 could then generate a positive feedback loop that brings the 2017 high into play. Conversely, a failure to hold that pullback level would expose a trip into the aligned 50- and 200-day exponential moving averages (EMAs) near $60.50 while negating this week's bullish technical signals. (See also: 8 Stocks Seen Surging on New Merger Wave.)

The Bottom Line

T-Mobile stock surged higher and broke a major trendline in reaction to a positive catalyst but could get stuck in the lower to mid-$60s before a multi-year breakout opens the door to the triple digits. (For additional reading, check out: 6 Safe Haven Stocks for a Stormy Market.)

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

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