Downside For Telstra

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

By Michael Gable 

This week is another big one for company reporting and so far so good for most with a few hand grenades thrown in for good measure. A few big names are due to report, so take note of our reporting calendar. An interesting article in the Australian Financial Review today notes that the Shiller CAPE index is the 3rd highest it has ever been (only exceeded just prior to the 1929 crash and the 2000 tech bubble), and US credit spreads are down to only 400 points, which it usually gets to just prior to a market correction. We don't think that a big crash is on the way, and we are positive on our index for this year, but it shows that the recent rally, based on a bit of hot air for the moment, is due a consolidation.

This means that the top end of town that led the rally is likely to stall for the time being. This is because the recent rally has been very narrow and anyone who is diversified would have failed to fully capitalise on it. We were reminded of this last week when Magellan Financial Group, which manages over $42bn, saw a drop in performance fees due to underperformance in the second half of 2016. Stocks below the top 20 or so that report well should do well and there will be opportunities in that space. Gold also continues to rally despite US rates going up, and that isn't showing signs of stopping soon. This week we review the Telstra ((TLS)) chart.
 

Back on 9 August when TLS was trading at $5.61, we started to get cautious. Our concern was that by failing to overlap the previous low near $6, it was likely to come back in "5 waves" which implied a dip to under $5. Having done that, it then rallied after the US election along with a few other blue chips. However, we can see now that after turning back at some resistance earlier in January, it is looking negative again. Last week's sell-off on high volume was a clear rejection of those levels above $5. It may bounce here a little in the short term, but it is likely to take out last year's low and head back towards $4.50. That $4.50 region also represents an approximate 50% retracement of the rally that started in 2010 and ended in 2015.
 

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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