Telstra Resumes Uptrend

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

Bottom Line 28/10/14

Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend: Up
Support Levels: $5.23 / $5.16 / $4.92
Resistance Levels: $5.57 / $5.70

Technical Discussion

Telstra Corporation ((TLS)) is a telecommunications and information services company providing services for domestic and international customers. It is Australia's most prominent telecommunications company with brand recognition across all segments of the industry.  On January 21st 2014 it acquired O2 Networks, a developer of data networking and network security software. In May 2014 the Company completed the sale of its Hong Kong based mobiles business CSL to HKT Limited. In July 2014, Telstra acquired an undisclosed minority stake in Telesign Corp. For the year ending the 30th June 2014 revenues increased 3% to A$25.32B. Net income before extraordinary items increased 25% to A$4.48B.  The dividend yield is currently 5.3%.  Broker/Analyst consensus is “Sell”.

Reasons to retain a bullish stance:
→ In a low interest environment TLS is an alternative to the banks.
→ The dividend has been increased with the company also announcing a one billion off-market buy-back.
→ Telstra continues to gain market share across mobile and fixed broadband as voice revenue declines.
→ Completion of the CSL sale which will free up $4b in cash that can be deployed for various projects, including acquisitions.
→ Australian interest rates to remain lower for longer meaning demand for higher yielding stocks will be maintained.

The decline down to the recent pivot low was significant which came in just short of 10%.  The last time a decline greater than that was witnessed was back in June 2013 which just emphasises how strong the trend has been.  Not that Telstra tends to head higher in a straight line movement although the trait of seeing higher highs and higher lows is clear to see on the chart shown here.  The other interesting facet about this chart is the 200 day moving average which continues to attract buyers as its tagged.  In fact it’s been tagged and rejected on no fewer than eight occasions since June of last year which just reiterates how important the trend line has been.  More recent price action has also been positive with a good rally unfolding over the past three weeks.  The diagonal line of resistance has once again been exceeded which is another hurdle that’s been overcome.  We tend to concentrate more on horizontal resistance though there will undoubtedly be many traders and investors taking a look at the diagonal variety.  It’s difficult to see too many negatives on this particular chart although if we are searching there is still bearish divergence evident on the monthly time frame.  However, although it’s been in position since December of last year it hasn’t triggered meaning it’s something to watch only at this stage and is not major reason for concern.  The bottom line is that the trend is up (albeit price action is choppy and messy) with no indication that a more significant retracement is going to suddenly take hold right here and now.  All we can do here is go with the flow and not fight the trend.

Trading Strategy

If you’re looking to be involved in a blue chip company providing an attractive dividend yield there’s still reason to want to be involved; especially if you are looking for an alternative to the banks.  In a low interest rate environment demand for Telstra should remain high, with no indication that the dividend is going to come under pressure anytime soon.  From a pure trading point of view a low risk entry isn’t presenting itself at this stage although a small micro consolidation pattern forming over the next week or two would provide a set up for those wanting to jump aboard.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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