Some Technical Analysis Can Guide Investors On How To Approach AT&T's Pullback

AT&T Inc. T’s incredible 2016 bull run may have finally hit a technical bump in the road this week. After peaking as high as $43.40 on Tuesday, the stock has pulled back to around the $42 level in early Friday trading.

Despite the pullback, AT&T remains up more than 22 percent in 2016 and more than 9 percent in the past month. This week’s pullback could be bad news for AT&T shareholders in the near term, as the stock’s RSI indicates that it had become extremely overbought prior to the pullback. RSI is technical measure of a stock’s momentum based on the magnitude of recent gains and losses.

Technical analysts typically consider a stock to be overbought when its RSI extends beyond 70, and AT&T’s RSI was consistently well above 70 for most of the second half of June.

In the near term, a pullback to the support level indicated by the green line in the chart above would not be surprising, nor would it be particularly bearish for long-term AT&T investors. The stock’s recent run had it overheated based on RSI and MACD. The MACD is another technical indicator that assesses a stocks momentum based on convergence and divergence of short- and long-term moving averages.

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If AT&T can find support near its 50-day simple moving average at around $39.60, both the MACD and the RSI will be reset and the stock will be free to continue its longer-term positive trend. However, if AT&T breaks down below $39 and out of the channel indicated above, it may not find support until it reaches the $37.30 level that held multiple times earlier this year.

Disclosure: The author holds no position in the stocks mentioned.