Verizon, AT&T and the Trade in Telecom

The only thing more impressive than the selling in some of the major telecommunications stocks was the buying that emerged late in the trading day to cut losses in half.

That said, stocks like AT&T (NYSE: T) and Verizon Communications (NYSE: VZ) remain at levels where buyers historically have been lured off the sidelines to bid stocks higher in the short-term.

Pulling back by nearly 1% ahead of trading on Friday before cutting losses in half, shares of AT&T have now closed lower for three days in a row. The sell-off in the stock, the first significant, short-term correction since AT&T climbed back above its 200-day moving average in early January, has taken T into short-term oversold territory, and earned the stock positive, short-term edge of more than a third of a percent.

Sellers have been even more aggressive in the market for shares of Verizon Communications. VZ has a positive edge that is nearly three times the size of the short-term edge in AT&T – not surprising with the stock’s sixth consecutive lower close, the fourth in technically oversold territory.

Shares of Verizon have a 7 out of 10 rating, putting the stock at the upper end of our “neutral” range. The 7 ratings is the stock’s highest since the end of January when VZ rallied for three days in a row, and five out of the next six, after a multi-day pullback kept VZ in short-term oversold territory for five days in a row.

Traders looking to avoid single stock risk while taking advantage of short-term weakness in this sector may want to consider the oversold conditions in the iShares Dow Jones U.S. Telecommunications Sector Index Fund ETF (NYSE: IYZ).

Shares of IYZ have pulled back for the last two days in a row heading into Thursday’s trading, and finished higher by less than a quarter of a percent. The buying on Thursday, lifting the fund from what was likely going to be a third consecutive lower close, did not prevent IYZ from closing short-term oversold for a third day in a row.

IYZ traded to its 200-day moving average on an intraday basis, but managed to rally to finish near the highs of the day. And the fact that the ETF will still open short-term oversold when trading begins Friday morning means that there still may be that much more of an opportunity for active investors to notice this exceptionally oversold ETF before the rest of the traders on the sidelines do.

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David Penn is Editor in Chief of