Trade Recommendation: Verizon Communications
As U.S. markets are moving lower, Verizon is one of the few stocks that are expected to move higher irrespective of the broader markets’ next move.
- After breaking from a double bottom pattern in 2010 (lows – violet trendline; breakout above pattern’s interim high – first blue arrow), the stock has climbed higher, finding support at a long-term trendline (green trendline and arrows).
- Since 2013, the stock has stalled in the $53.70 – $55 range on multiple occasions (resistance range – red horizontal trendlines; retests – red arrows).
Figure 1. VZ Weekly Chart
- Zooming in, the stock broke above a 2-month resistance (orange horizontal trendlines in Figure 2) on the heels of reporting strong Q1 earnings.
- Since mid-March, a short-term support has carried prices higher (purple trendline).
Figure 2. VZ Daily Chart
- Filling the up-gap will give a bullish K-Divergence signal. While, on average, almost 85% of gaps get filled within 2 months of occurring, the stock’s strong price action during a broad market sell-off is constructive and this particular gap may remain open in the foreseeable future.
- The stock is expected to find support within the $47.50 – $49 area if today’s up-gap is filled.
- Nearest major resistance is at $53.70 (lower boundary of long-term resistance range – lower red trendline).
- Bullish as long as the stock remains above the purple trendline.
- Buy half a position at current levels ($49.67 at the close on April 24). Buy another half if the up-gap gets filled and the stock remains above the short-term support (purple trendline, currently at $47.35, rising by roughly 17 cents/week).
- Target: $53.70
- Stop: A close below the short-term support (purple trendline).
Benefits of Recommended Trade
- A favourable risk-reward profile (roughly 1 : 2). Even more favourable if the up-gap gets filled and the average entry price is lower (due to averaging down).
- An upward-sloping support used as a stop, resulting in an improving risk-reward profile of the trade as time goes by.
Disclosure: No position but may initiate a long stock/call position at any time.
Featured image courtesy of Shutterstock.