Dow component Verizon Communications Inc. (VZ) traded less than 1% higher in Thursday's pre-market after the company reported earnings per share (EPS) of $1.23 and second quarter revenue of $32.07 billion. EPS beat estimates, while revenue missed the mark, falling 0.4% year over year. The communication giant cited weaker-than-expected wireless equipment revenue and cash flow for the results while reaffirming low-single-digit percentage growth guidance for fiscal year 2019.
The stock has been running in place so far this year, carving a symmetrical triangle pattern after mounting January 2018 resistance in the low $50s in an October breakout. Accumulation has drifted lower during the period but remains relatively close to four-year highs. It isn't surprising that shareholders are sticking like glue to the mega cap, with the generous 4.26% forward dividend yield offsetting sideways price action.
In addition, there are two opposing ways to view the government's recent approval of the merger between rivals T-Mobile US, Inc. (TMUS) and Sprint Corporation (S). T-Mobile has to sell assets to Dish Network Corporation (DISH) to complete the deal, potentially increasing competition and lowering customer bills, but the segment will now be dominated by just three players, potentially allowing them to raise prices with greater ease. For now at least, the market views the merger as a profit maker for the entire industry.
VZ Long-Term Chart (1996 – 2019)
The stock posted healthy gain in the 1980s and 1990s, lifting in a graceful uptrend that issued two splits before topping out in 1999 at an all-time high in the mid-$60s. It tested that peak after a 30% decline into the new millennium and turned sharply lower, entering a steep downtrend that posted two selling waves into July 2002's seven-year low at $24.23. That marked the lowest low for the next five years, ahead of a quick bounce that stalled in the low $40s just six months later.
Price action then eased into a trading range, with resistance at the recovery high and support in the upper $20s. It broke down in 2005 but stabilized quickly, turning higher in a steady uptick that reached range resistance in 2007. A breakout failed after adding just two points, setting the stage for a furious decline that broke the 2002 low during the 2008 economic collapse. The stock settled at a 16-year low about three points under that level and bounced, stalling quickly in the low $30s.
A 2010 breakout gathered steam into 2013, lifting above the 2007 high before stalling in the low $50s. That price level marked resistance into the 2018 breakout, which has developed little or no upside momentum, instead easing into a symmetrical triangle pattern. Even so, the stock is holding within a stone's throw of the 1999 peak, with a breakout into the upper $60s setting off major buying signals.
A Fibonacci grid stretched across the nine-year downtrend highlights the importance of holding the 2018 breakout near $54. That buying impulse mounted the .786 sell-off retracement level after a five-year testing process, potentially opening the door to the 1999 high and a major breakout. The 10-month triangle pattern is sitting right on top of new support, allowing market players to track progress from a close-up vantage point.
Bears hold the edge as we head through the summer months because the monthly stochastics oscillator has been engaged in a complex sell cycle since July 2017 and still hasn't reached the oversold level. Meanwhile, the stock is trading less than two points above triangle and breakout support, warning that it won't take much selling pressure to trigger a breakdown. Hopefully for bulls, this morning's buy-the-news reaction indicates that shareholders are willing to hang tough in coming months.
The Bottom Line
Verizon Communication stock has ticked higher after a mediocre quarter but remains dangerously close to 2018 breakout support.
Disclosure: The author held Verizon shares in a family account at the time of publication.