Goldman Sachs added Dow component Verizon Communications Inc. (VZ) to its “Conviction Buy” list on Wednesday morning, placing a $61.00 price target after a three-week 16% slide completed a short-term reversal in the upper $40s. The downdraft looks relatively minor compared to the majority of stocks in recent weeks, but this high-yield slow mover rarely carves volatile price swings.
The telecommunications giant held up well during the trade war, with domestic operations insulating revenues against international exposure, but it still failed to break out above 20-year resistance in the mid-$60s. The March decline completed a reversal near that level following a 13-month testing process, dropping the stock to a 20-month low. However, it has now bounced at an 11-year trendlinesuggesting that the shallow multi-year uptrend remains intact.
The company currently pays a 4.49% forward dividend yield that is unlikely to be suspended because the revenue stream has remained largely intact during the crisis due to long-term contracts. However, it’s obvious that new phone sales declined sharply in the first quarter, raising the odds that the April 24 earnings release will fail to meet prior expectations. Even so, the hefty dividend could generate modest returns in coming quarters, especially if it’s reinvested.
VZ Long-Term Chart (1989 – 2020)
A three-year trading range cleared resistance at a split-adjusted $18.50 in 1989, entered a healthy advance that posted multiple rally waves into 1996. The uptick entered a more vertical trajectory in 1997, reacting to the growing power of the internet, finally posting an all-time high at $64.75 in the fourth quarter of 1999. The stock turned sharply lower when the bubble burst in 2000, bottoming out at a seven-year low in the mid-$20s in 2002.
Weak upside into 2003 stalled in the low $40s, marking the highest high for the next four years, ahead of choppy range-bound action between the prior high and low. It finally broke out in the third quarter of 2007, but the rally failed, giving way to renewed selling pressure that undercut the 2002 low during the 2008 economic collapse. That impulse ended at $21.48, marking the end of the nine-year downtrend, ahead of mixed price action into the start of the new decade.
The stock completed a round trip into the 2007 high in 2012 and broke out, stalling in the mid-$50s a year later. Price action carved a five-year inverse head and shoulders pattern with a neckline at that level into 2018 and broke out once again, stalling within two points of the 1999 high in December 2019. It’s been all downhill since that time, with a volatile multi-wave decline landing on top of the 11-year trendline in March.
VZ Short-Term Outlook
The monthly stochastic oscillator crossed into a sell cycle from the overbought zone in January 2020, predicting at least six to nine months of relative weakness. It has now stretched through the panel’s midpoint, indicating that bears remain in charge under the surface. That selling pressure should keep a lid on gains in the coming weeks, suggesting that the stock will need more time to build support in the upper $40s.
The on-balance volume (OBV) accumulation-distribution indicator has dropped to the lowest low since February 2019, while buying power in the past week has shown little enthusiasm, despite the strong bounce. As a Dow component, Verizon stock also remains vulnerable to forced selling events when predatory algorithms target the instrument through index futures and exchange-traded funds. As a result, this stock may not bottom out until the market finds a long-term low.
The Bottom Line
Verizon could post modest returns in a flight to safety, but its membership in the Dow Jones Industrial Average will act as a headwind in coming months.
Disclosure: The author held Verizon shares in a family account at the time of publication.