Telstra At $5.00?

This story features TELSTRA GROUP LIMITED. For more info SHARE ANALYSIS: TLS

Bottom Line 20/11/12

EW Trend: Corrective
Price Trend: Up
Trend Strength: Strong

Technical Discussion

LAYMANS:

The rally that commenced in November 2010 has now travelled further than any during the long downtrend that commenced back in 1999.  Of course that longer term downtrend remains intact with the company suffering severe technical damage over the years.  However, it’s a relevant fact and keeps the door open for the bounce to continue over the medium term without too much in the way of retracements, albeit possibly following a small pull-back over the coming weeks. We’re technically in a position to see a pause for breath right now though of course this was the exact situation during our last review.  In fact strength has continued to be the main theme and until there is evidence of selling activity we can’t get overly confident in regard to a pull-back commencing.  We noted the falling volume last month which is always a warning sign of buyer demand flagging though unless sellers start to appear any weakness is likely to be short in nature.   The one thing that continues to help defensive stocks like Telstra ((TLS)) is investor’s reluctance to take on risk and whilst this remains the case it’s difficult to envisage locking in a significant top anytime soon.   

 
TECHNICAL:

Very rarely will we focus on the weekly chart though the lack of clarity on the daily time frame means this is exactly what we’ll continue to do.  We’d pencilled in wave-b last month meaning we were looking for a small retracement before the trend continued.  Obviously this has not been the way forward although that in itself isn’t reason to amend our labelling.  One of the Elliott guidelines states that wave-b of a flat often heads up to the 1.382 projection of wave-a providing us with our line in the sand at $4.24.  If that level is penetrated then our current count is certainly incorrect and we’ll have to take another look at the patterns.  I mentioned the declining volume above as being a potential stumbling block and we also have some Type-A bearish divergence on the daily chart (not shown).  However, very importantly it has yet to trigger with a push beneath today’s low doing just that.  It’s also worth mentioning that weaker Type-B divergence is evident on the weekly chart with price making a higher high whilst our oscillator failed to confirm.  So there are certainly technical reasons implying that a sideways consolidation pattern or small retracement is around the corner though until signs of distribution occur there’s no point trying to fight the trend.  One thing’s for sure, there is no evidence of selling pressure at this juncture although it’s definitely something to look out for throughout the rest of the week and into next.  The other key pattern is the rising channel with price stepping its way higher in a series of corrective movements.  Over the medium term this trait could continue until the next line of resistance circa $5.00 is tagged.

Trading Strategy

“…As already mentioned the high of wave-(a) could be penetrated by a small margin though if volume remains weak we’d expect to see the low of wave-a revisited before the trend resumes…”   The recent pivot high has now been penetrated meaning if our wave count is correct a running or expanded flat pattern is taking hold.  The key level here to focus on is the annotated target at slightly higher levels.  If a downturn kicks in before that level is tagged price should continue down to the lower trend line of the rising channel as a minimum to complete wave-(b).  Should this be the way forward then another good buying opportunity is going to present itself though remember we are looking at the weekly time frame here so it’s not going to happen overnight.  If the 1.382 projection is overcome immediately a more complex combination pattern is unfolding though we’d still expect the line of resistance to come under pressure without too much difficulty.

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