Leaping Lizards Running Down Broadway Attacking the Giants

• Posted by Greg Harmon
• on May 4th, 2011

There are the leaders in the mobile phone space, Verizon, AT&T and maybe Sprint, but two smaller regional providers are making a stand in this space: Leap Wireless (ticker:LEAP) and MetroPCS Communications (ticker:$PCS). PCS reported Tuesday and went to new highs, and LEAP reports after the bell on Wednesday. Is there more upside for PCS? And does the PCS earnings reaction create a roadmap for LEAP? Let’s see what we can glean from the charts.

MetroPCS Communications, PCS

MetroPCS has been in a rising channel since February 2010, more than a year. As it went into reporting it had many positive technical features. The Relative Strength Index (RSI) had just bounced and was pointing steeply higher. The Moving Avergae Convergence Divergence (MACD) indicator had just crossed positive and the Bollinger bands were expanding for a big move. Tuesday it moved up over 10% on huge volume to the top of the channel in a near Marubozu candle. With the Simple Moving Averages all sloping higher it the stock appears ready to break the channel and run. If it can get above the top rail then look for 21.50 as the first target, a channel width above the top rail. If it fails there is good support in the 16.75 – 17.00 area.

Leap Wireless, LEAP

Leap Wireless has not had it quite as easy as PCS. It has been in a rising wedge, or megaphone pattern, since August 2010. There are some positives as it heads to earnings Wednesday night. The RSI has bounced and is turning higher, the MACD is improving and the SMA’s are sloped higher. But it has also just rejected off of long term Support/Resistance at 15.82 and printed a bearish engulfing candle Tuesday. there is support lower at the 50 and 100 day SMA’s at 14.25 and 13.73 as well as previous support at 14.25 from January and February. For LEAP the options implied volatility is not much higher that the historical volatility, a sign the options market doe not anticipate a large move. But the May 15 Straddle can be sold for 1.44, based on the last bids, creating an envelope of 13.75 to 16.63. This range looks safe unless it moves above the 15.82 level during normal trading hours, as the top rail is then at 17.15, so perhaps leg into the Straddle selling the put first and waiting to see if it moves higher before selling the call. If it breaks the S/R line then sell the 16 call instead.

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