American Tower Corp. Revisited

02/20/07 11:47:49 AM

by Koos van der Merwe

I wrote about American Tower Corp on March 7, 2003, when the price was in the region of $5.00 per share.

Security: AMT
Position: Sell

American Tower Corp. (AMT) is a wireless communications and broadcast infrastructure company. The company operates a leading network of communications towers and also provides a comprehensive network development services for wireless service providers and broadcasters.

In March 2003, in an article written for Traders.com Advantage, I advised that the stock should be accumulated. My exact words were:

AMT is a share that has shown good strength in a volatile, uncertain market. As the market drops with the advent of war, should it occur, it is a share that I would like to hold.

Well, hindsight shows that my evaluation was spot on. The share price is now $40.13, and buyers following my advice would have made a profit of more than 700%. Incidentally, I was wrong about the war... the market did not drop.

FIGURE 1: AMERICAN TOWER CORP., WEEKLY. This chart of AMT suggests that a sell signal could be present.

Graphic provided by: AdvancedGET.

What now? Should you realize your profits and sell? Figure 1, a weekly chart, shows how the price has risen from $0.60 in October 2002 to its present level of $40.13. The chart also shows how a divergence sell signal was given in April 2006. This would have been supported by the fact that the price had tested 61.8% retracement level from the high of March 2000 to the low of October 2002. Would you have sold? That is for the daily chart to tell us (Figure 2). Had you sold, would you have bought back in again as the price tested the 50% Fibonacci retracement level? Once again only a daily chart can tell us, because the relative strength index (RSI) used to give us the divergence sell never came near oversold levels.

FIGURE 2: AMERICAN TOWER CORP., DAILY. This daily chart of AMT does not confirm the sell suggested by the weekly chart, but suggests caution.

Graphic provided by: AdvancedGET.

A look at the daily chart tells a slightly different story. Here, the RSI did reach oversold levels and would have put one back into the share. The more conservative would have decided to buy on the divergence buy signal as it touched the support trend line at $28.50, a level that also happens to be the 50% Fibonacci retracement level.

Currently, the price is flirting with the 72% retracement level at $40.13. This does suggest a sell. However, the RSI did not rise above the 70 level, so an overbought level was not reached. A sell signal could therefore be suspect or delayed in a sideways price move.

FIGURE 3: AMERICAN TOWER CORP., DAILY. This daily chart of AMT uses OmniTrader to confirm a short-term sell signal suggested by the daily Advanced GET chart.

Graphic provided by: Omnitrader.

Finally, I turned to Omnitrader to finalize my decision (Figure 3). The program gave me a sell signal on January 30, 2007, and I would have sold — although the stochastic RSI shown has given a few buy signals since then, I would not have taken them unless I was looking for short-term trading and wanted to buy with the trend. The vote line, a line based on the three trading strategies, shown below the vote line, and where I have included the TC strategy recently written about in STOCKS & COMMODITIES, has given another sell signal. This tends to confirm the possible sell signal.

To conclude, were I a holder of AMT, I would sell at present levels, enjoy my profits, and wait for another buy signal sometime in the future.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.