T-Mobile Could Break Out in the First Quarter

T-Mobile US, Inc. (TMUS) received approval from key U.S. regulators to merge with Sprint Corporation (S) in December, but it needs a final nod from the Federal Communications Commission (FCC) and other departments taking a last look at their Huawei connections. If all goes well, the marriage will finally be consummated in the first half of this year, establishing a more formidable competitor to Verizon Communications Inc. (VZ) and AT&T Inc. (T).

T-Mobile stock ended 2018 just 10 cents above the last trade posted in December 2017, translating into a 0.01% annual return. The company pays no dividend, so shareholders earned nothing for their efforts while waiting for a laundry list of regulators to act on the merger proposal. However, a strong January bounce has reached within three points of 2018 resistance, which also marks the all-time high. This placement bodes well for a breakout in conjunction with, or ahead of, final approval.

TMUS Long-Term Chart (2007 – 2018)

Long-term technical charts depicting the share price performance of T-Mobile US, Inc. (TMUS)

The long-term chart strings together a number of entities and acquisitions – including MetroPCS, SunCom Wireless and T-Mobile International AG – highlighting parent Deutsche Telekom AG's (DTEGY) wheeling and dealing in the U.S. market. The Sprint merger will add another wrinkle, if approved, telling market players to focus on price levels while avoiding volume analysis, which could generate false signals.

The current stock came public at $25.10 in April 2007, just a few months before the mid-decade bull market ended, and topped out at $40.87 about three months later. That marked the highest high for the next seven years, ahead of a downturn that picked up steam during the 2008 economic collapse. It failed to bounce when the broad market turned higher in 2009, hitting a new low at $5.52 in January 2010.

A recovery wave into 2011 failed in the upper teens, triggering a reversal that tested the prior low successfully in the third quarter of 2012. The subsequent uptick completed a multi-year double bottom reversal, setting the stage for a strong uptrend that broke out to new highs in 2016. The rally ended in the upper $60s in May 2017, giving way to a rectangular consolidation that is still in force more than 18 months later.

Price action has held a trendline of higher lows since 2014, with the last successful test in December 2018, while also holding support generated by 2017's breakout above the 2007 high (black line). This positive feedback loop raises the odds that the stock will mount range highs in a major breakout, but the monthly stochastics oscillator isn't cooperating, grinding through a sell cycle following a bearish November crossover. This conflict tells us to maintain a defensive posture for now.

TMUS Short-Term Chart (2017 – 2018)

Short-term technical charts depicting the share price performance of T-Mobile US, Inc. (TMUS)

The stock mounted the 2017 high in September 2018, but the breakout failed quickly, yielding a sell-off that found support at the red multi-year trendline after breaking the blue trendline of lower highs. It remounted both lines at the start of January and has now reached horizontal resistance, predicting a renewed downturn that could establish a trading floor in the mid-$60s. That base could also signal a final opportunity to get on board ahead of a breakout.

Conversely, the multi-year trendline at $62 needs to watched closely during first quarter pullbacks and downturns because a breakdown would set off major sell signals, exposing renewed downside into the 2018 lows in the mid-$50s. It's best to exit all positions if that happens because trapped shareholders could easily break range support and drop the stock into its first major downtrend since 2011.

The Bottom Line

T-Mobile stock looks set to break out in the first quarter and hit new highs, but declining relative strength is telling prospective shareholders to exercise aggressive risk management in case of a setback in the merger efforts.

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

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