Tomahawk, WI 9/04/2013 (BasicsMedia) –  AT&T Inc. (NYSE:T) (Closed: $33.32, Down: 1.51%) opened in the positive territory on Tuesday but soon lost its ground to get in the red and remained there for the rest of the session. The volume at 30.5 million was substantially higher than the average volume of 23 million. The price action of the day created a large Engulfing Candlestick with very bearish implication.

The stock had its heyday in the period of 1988 – 1999 when it rallied from a measly low of $8 levels to a high of $60 levels, where it created a Double Top. The IT bubble burst at that point of time and the stock after a failed attempt to get above $60 levels in 2000, crashed to $18.85 by the early part of 2003. This violent fall was retraced about 60% in an equally swift move by the end of 2007. The bear market of 2008 massacred many companies but this stock was relatively unscathed as it didn’t make any lower low. It found bottom at $20.90 in 2008. The current rally that began from that point found resistance at $39 in June this year.

The entire price action from the 1999 top is taking a coiling shape, a Contracting Triangle. The last top at $39 was exactly on the trendline connecting the September 2001 top of $47.50 & the 2007 Double Top at $43 levels. In that case, we can expect another one or two major drops pending inside this contracting range, making this not very lucrative from an investment point of view.

Currently the stock is very close to the support zone of $32.70 – $33 and below that comes the major trendline support at $32 levels. For any bullish sentiment to survive, the stock must hold these levels. Investors could exit the stock if the price moves below $31.90 – $32 firmly. Fresh entry is recommended only above $39.

The Coca-Cola Company (NYSE:KO) (Closed: $37.90, Down: 0.73%) continued its down trend on Tuesday as it swiftly dropped down in the red in the opening moments itself and stayed there till the closing with never a sign of recovery. The volume at 19 million was much higher than the average volume of 13 million. The price action of the day created a highly bearish Engulfing candle.

After a steady rally to $44 levels in 1998 from a low of $2 levels in 1988, the stock faced its first serious correction in 1999 – 2003. The correction took the form of a Double corrective and the last part of that was an Ending Diagonal in the Elliot Wave theory parlance or a Falling Wedge in the classical Dow Theory. This pattern usually has a target at the point of its own origin and that condition was fulfilled here successfully in 2008. The vicious bear market at that point took the price to test its 2003 bottom at $18.50 – $18.70 levels and a new bull market for the stock began there. This rally has already taken the price very close its all time high of $44.50 when it hit the high of $43.43 in June 2013. A price rejection from that level brings the risk of a creation of a Double Top there.

The whole rise from the 2009 bottom is contained in a rising channel and the rally is clearly subdivided in 5 legs. The drop of the last week has broken the 2 – 4 line and has signalled that the price going to retrace the whole rally in the coming months. It is going to be confirmed if the price trades below $37.40 in this week. Holding that low we can expect a short term bounce.

Investors should exit the stock if it sustains below $37.40 and avoid it for the time being.

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