Viacom Could Enter Long-Term Uptrend

Viacom, Inc. (VIAB) rallied 6% on Thursday, despite posting a 3.8% year-over-year decline in fiscal third quarter revenues. An optimistic outlook underpinned price action in the troubled media giant, which is digging out after years of drama and litigation with former executive chair and founder Sumner Redstone. While the recovery effort will continue into the next decade, the stock may have bottomed out and could soon enter a long-term uptrend. 

Deep-pocketed bottom fishers may wish to open positions at this juncture, but the majority of market players should keep their powder dry and wait for price action to set off long-term buying signals. That will come when the stock finally holds a breakout above the broken 2016 low at $30.11. It has been testing that boundary since November 2017 but still hasn't cleared the barrier or established new support in the low $30s. (See also: CBS Board Votes to Curb Redstones' Power.)

VIAB Long-Term Chart (2006 – 2018)

The current Viacom opened at $41.12 after issuing new shares in January 2006, following the split with CBS Corporation (CBS). It ticked up to $43.90 in February and sold off to $32.42 in July, carving a trading range that broke down in June 2008. The subsequent decline accelerated during the economic collapse before posting an all-time low at $11.60 in November. The stock turned higher in 2009 and completed a round trip into the 2006 high in February 2011.

A rally wave stalled in the low $50s, giving way to a large-scale symmetrical triangle that completed the handle of a five-year cup and handle breakout in August 2012. The stock posted impressive gains into March 2014's all-time high at $89.27 and turned lower, grinding out a topping pattern that broke to the downside in September. The decline stalled at the 200-day exponential moving average (EMA) a month later, generating a multi-month test, followed by a July 2015 breakdown.

The double breakdown signaled the start of a brutal downtrend, underpinned by the company's internal soap opera and the millennial cord-cutting phenomenon into streaming entertainment. Major-owned properties CMT, MTV and Comedy Central all lost viewership during this period, but the company failed to respond forcefully while media competitors ramped up internet-based offerings. (For more, see: Cord Cutting Is Accelerating Rapidly: New Study.)

VIAB Short-Term Chart (2017 – 2018)

Selling pressure eased in the low $20s in November 2017, giving way to a bounce that mounted the 200-day EMA in the low $30s in January 2018. It tested that level into March and broke support, dropping into the mid-$20s in June. Two buying waves since that time have brought the moving average back into play for the fourth time, raising the odds for a renewed breakout that also lifts the stock above round number resistance at $30.

However, the initial rally wave won't establish a long-term uptrend due to the first quarter failure, which marked the third major reversal at that level since 2016. Instead, the stock will need to prove itself with a consolidation pattern on top of the moving average, followed by a volume-supported buying thrust. That process could take several months, but the delayed signal makes sense because the stock hasn't held above the 200-day EMA since the 2014 breakdown.

On-balance volume (OBV) topped out with price in 2014 and entered a steep distribution wave that ended in 2015. It ticked higher into April 2017, stalling just above the 2014 high while setting off a bullish divergence that failed to end the downtrend. A November 2017 test of the 2015 low ended selling pressure, but the slow uptick since that time indicates caution by institutions that have lost money on this laggard in recent years. (See also: Uncover Market Sentiment With On-Balance Volume.)

The Bottom Line

Viacom continued a nine-month test at long-term moving average resistance following an upbeat earnings report and could enter a secular uptrend prior to year end. (For additional reading, check out: 8 Stocks Seen Surging on New Merger Wave.)