Judgment Day Approaches for T-Mobile and Sprint

The fate of the merger between T-Mobile US, Inc. (TMUS) and Sprint Corporation (S) will soon be in the hands of Senior United States District Judge Victor Marrero, who presided over a December trial brought by 14 state attorneys general seeking to block the well-publicized hook-up. Opinions of Wall Street analysts are evenly divided on the court's decision, which may come later this month. U.S. government agencies have already stated they won't block the merger, so a "thumbs-up" here could finally end the legal battle.

T-Mobile US CEO John Legere triggered a stock decline in November when media outlets reported that he was seeking the CEO job at WeWork, the troubled start-up. That didn't happen, but the executive announced his resignation just one week later, effective when his contract expires on April 30. Unfortunately for shareholders, the drama unfolded right in the middle of the merger approval process, triggering an unneeded distraction while raising legitimate questions about his fiduciary obligations.

Even so, T-Mobile US stock is holding support at the 200-day exponential moving average (EMA) in the $70s ahead of the court decision and could gain ground regardless of the final outcome. Sprint's share price performance has deteriorated since the start of merger discussions, and many investors will be happy if the deal fails and T-Mobile gets a golden opportunity to walk away. However, volatility is likely to spike higher in the short term regardless of the outcome.

TMUS Long-Term Chart (2007 – 2020)

The 13-year price history combines a number of mergers and acquisitions, as well as accounting changes by parent Deutsche Telekom AG (DTEGY). T-Mobile US stock charged higher after opening in the mid-$20s on the first day of trading in April 2007, entering a modest uptrend that topped out just above $40 in July. The subsequent downtrend hit new lows in September, signaling the next phase of a bearish period that finally ended at an all-time low in the single digits in February 2010.

A bounce into 2011 failed in the upper teens, giving way to renewed selling pressure, followed by a successful retest of the prior low in the second quarter of 2012. That price action completed a large-scale double bottom reversal, setting the stage for a new uptrend that stalled within five points of the 2007 high in 2014. The stock ground sideways around that level into the second quarter of 2015 and broke out, but upside momentum failed to develop until the first quarter of 2016.

That rally impulse posted impressive gains into 2017, stalling in the upper $80s, ahead of a broad and volatile trading range that persisted into a February 2019 breakout. The rally posted an all-time high at $85.22 on July 26, giving way to choppy sideways action between that resistance level and range support in the mid-$70s. The holding pattern remains in force this January, while market players patiently await the finalization of the merger process.

The monthly stochastics oscillator reached the overbought level in September 2019 and crossed into a long-term sell cycle in November, predicting at least six to nine months of relative weakness. The indicator is now accelerating through the panel's midpoint, suggesting that market players believe that the merger will get blocked. Even so, underlying accumulation remains exceptionally strong, and bears should stay on the sidelines as long as price continues to hold above 2017 breakout support in the upper $60s.

The Bottom Line

T-Mobile and Sprint shareholders are awaiting the outcome of a lawsuit brought by 14 state attorneys general, which is seeking to block their well-publicized merger. 

Disclosure: The author held no positions in the aforementioned securities or their derivatives at the time of publication.