T-Mobile Poised for a Breakout in Q1

In December, T-Mobile US, Inc. (TMUS) secured approval from major U.S. regulatory bodies to merge with Sprint Corporation (S). However, it awaits final authorization from the Federal Communications Commission (FCC) and other agencies scrutinizing ties to Huawei. If all approvals are granted, the merger is expected to finalize within the first half of this year, creating a stronger competitor against Verizon Communications Inc. (VZ) and AT&T Inc. (T).

By the end of 2018, T-Mobile's stock price had risen only marginally, closing just 10 cents above its December 2017 value, yielding a negligible 0.01% annual return. With no dividends issued, shareholders saw little reward during the prolonged regulatory review period. Nevertheless, a robust rally in January has brought the stock within three points of its 2018 resistance level, which also represents its all-time peak. This positioning suggests a promising breakout could occur alongside or shortly before receiving final merger approval.

TMUS Long-Term Performance Overview (2007 – 2018)

The long-term chart reflects T-Mobile’s evolution through acquisitions such as MetroPCS, SunCom Wireless, and T-Mobile International AG, highlighting Deutsche Telekom AG’s (DTEGY) strategic maneuvers in the U.S. market. The anticipated Sprint merger, pending approval, adds complexity and signals investors to prioritize price action over volume to avoid misleading indicators.

Initially public at $25.10 in April 2007, just before the mid-2000s bull market ended, TMUS peaked at $40.87 within three months. This high remained unmatched for seven years before the 2008 financial crisis triggered a downturn. The stock failed to recover in 2009, hitting a low of $5.52 in January 2010.

Attempts to rebound in 2011 stalled in the upper teens, followed by a reversal that retested lows in late 2012. The subsequent rise formed a multi-year double bottom, paving the way for a strong upward trend that culminated in new highs by 2016. The rally peaked near $68 in May 2017, transitioning into a consolidation phase lasting over 18 months.

Since 2014, the stock has maintained a series of higher lows, with the latest test in December 2018, and sustained support above the 2007 high (black line). This positive momentum increases the likelihood of a breakout. However, the monthly stochastic oscillator is currently in a sell cycle following a bearish crossover in November, suggesting a cautious approach.

TMUS Short-Term Analysis (2017 – 2018)

In September 2018, TMUS briefly surpassed its 2017 high but quickly retreated, finding support at a red multi-year trendline after breaking a blue trendline of lower highs. The stock reclaimed both trendlines in early January and has now encountered horizontal resistance, indicating a potential pullback that might establish a trading floor in the mid-$60 range. This level could represent the last chance to enter before a breakout.

Investors should closely monitor the multi-year trendline around $62 during any first-quarter declines. A breakdown below this support would trigger strong sell signals and could drive the stock down to 2018 lows in the mid-$50s. Exiting positions in such a scenario is advisable to avoid being caught in a significant downtrend not seen since 2011.

Conclusion

T-Mobile's stock appears primed for a breakout in the first quarter, with the potential to reach new highs. However, weakening relative strength indicators advise investors to implement stringent risk management strategies in case of setbacks related to merger approvals.

Disclosure: The author held no positions in the securities mentioned at the time of writing.

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