Verizon: Breakout or Breakdown on the Horizon?

Shares of telecom giant Verizon Communications Inc. have been trading in a tight range near levels that go all the way back to the tech bubble or the late nineties and early aughts. The stock has already had a very impressive year, rising more than 20 percent in 2016, and recent price action suggests that VZ is setting up for a further breakout or a substantial retracement of its year-to-date gains.

The stock hit its highest level since January 2001, just below $57, on July 5th. After reaching this level, VZ has been trading in a very tight range between $55.96 and $56.22 over the last ten trading sessions. This technical pattern, where the chart is coiling in a tight range after a significant move higher suggests that a battle between bulls and bears is taking place in the name right around the $56 mark. Once key levels are breached either to the upside or downside, VZ may be in for another substantial move.

The level that traders should be focused on to the upside is the 52-week high of $56.95. If the stock is able to break out of its current range to the upside it could continue to run as these levels haven't been seen since 2001. Conversely, traders should look to the $55 level as near-term support. If this support is broken, it may signal a further retracement is likely in the name.

Although Verizon is a conservative, staid stock that has many of the features of a utility, investors have been richly rewarded so far this year and those gains may continue. Given Verizon's $226 billion market cap, dividend yield above 4 percent, low beta, and conservative business, this is definitely a stock that is relatively safe to trade around current levels from a volatility perspective. Investors and traders are unlikely to get burned too badly if they get the direction wrong.

The near-term catalyst for price action in the stock will be the company's earnings report which is due out on July 26. Wall Street analysts are looking for earnings per share of $0.93 on sales of $30.97 billion. This represents a decline from EPS of $1.04 on sales of $32.22 billion in the year ago period.

The consensus is that VZ will record declines in earnings and sales not only in the current quarter, but also for the fiscal year, with growth continuing next year. Therefore, any suggestion that the most recent quarter and the fiscal year are trending better than expected could trigger further near-term gains in the shares. Conversely, given current price action, bad news is likely to result in a pullback.