Verizon Communications Headed for Dip

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With the market lingering around all-time highs, investors are feeling optimistic about the future. That means it’s time to buy, buy, buy.

After all, doubling down when the “going is good” only makes sense, doesn’t it?

Well, maybe not. Going long at a new all-time high – literally, the highest prices that stocks have traded at ever – might not be such a great idea.

But that doesn’t stop plenty of foolish bulls from doing it anyway.

Whenever the market’s at a new high (like it is right now), it’s arguably better to start looking for short trade opportunities. I know that sounds counterproductive when the market’s doing nothing but going up, but consider that the last time equities were trading so far outside of their normal range, a big dip followed.

Right now, the same scenario could be playing out.

So, if the market ends up selling-off over the next week or two, it’d be nice to have a short trade to keep in your “back pocket” until then, like what Verizon (NYSE: VZ) is showing on the charts.

In the weekly candlestick chart above, you can see that VZ has had an up-and-down year. We actually took the stock long back in September, to a solid 6% gain. That might not sound like much, but VZ shares typically don’t move all that much.

An appropriately priced and dated call option would’ve seen returns right around 75%.

Now, however, after rising, VZ’s ready to sell. It just ran into key resistance overhead, barely missing the upper Bollinger Band (BB). And while the 50-week moving average is trending upwards, the current weekly candlestick is trading below the last eight candle bodies – a rare occurrence in newly formed setups.

Should VZ fall below the current week’s low, down to $59.05, it might make sense to go short. Incidentally, that’s around the same price level VZ fell to after the company reported earnings on October 25th, making it an even more important level of support.

Whenever a stock drops below its post-earnings trading session low, that’s often a sign of a future downtrend. In VZ’s case, we’ve got two trading sessions that bounced off support there.

If support fails, a collapse could follow, potentially down to around the lower BB at $55. VZ has “ping-ponged” all year, I don’t expect that behavior to change anytime soon.

Especially if the general market retreats from the recent highs.

 

 

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