A dividend-paying defensive stock entering a bullish trend, according to the charts
When the market appears to be in a bullish phase, investors in recent years have flocked to the growth stocks promising capital appreciation. In a more defensive environment, we instead gravitate to lower volatility, higher dividend-paying stocks. The recent action in AT & T (T) suggests that this telecom stock can deliver a powerful combination of strong price performance and a meaningful dividend as well. While the S & P 500 bottomed out in October 2023, T actually bottomed out over the summer of that year. By October, AT & T had pounded out a series of higher lows, confirming a rotation to a bullish trend. By the end of 2023, T had finally reached $17.50, representing a 61.8% Fibonacci retracement of the downtrend from earlier that year. Over the next six months, this telecom leader essentially bounced between support at the 38.2% retracement around $16 and resistance at the 61.8% retracement level at $17.50. The low in April 2024 was also right at the 200-day moving average, and T soon was back higher to retest the same resistance level as in previous upturns. But over the last six weeks, AT & T has finally appeared to break out of this consolidation phase, pushing just above $18 in early June. The price then pulled back to test the breakout level, which is commonly observed in stocks finally breaking out of an established base. With the consolidation phase in the rearview mirror, AT & T appears set to retest the early 2023 high around $20. Using trendlines How can we confirm this new uptrend, and also manage potential downside risk in case the trend begins to falter? Here we've drawn up a simple trendline analysis, with the green trendline tracking the major lows starting in July 2023. This trendline currently sits around $16.70, right around the current level of the 200-day moving average. As a long-term trend gauge, I would assume that any price action above this trendline is still within the context of a bullish phase. I've also drawn a short-term trendline in pink, lining up the price lows in April, May, and June. Since an uptrend is formed by a pattern of higher highs and higher lows, then a consistent short-term uptrend would most likely remain above this trendline. Any break below that short-term trendline would lead me to question the sustainability of the uptrend following the recent breakout. As a trend-follower, I'm always on the lookout for new breakouts which can often lead to consistent and quite profitable uptrends. And when I find one of those breakouts in a high dividend payer like AT & T, I'm reminded that value stocks can provide a powerful combination of strong price performance and a healthy income component as well. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.