I have been away in California over the past two weeks and have been unable to update you on my position on Telstra (TLS). For those who follow my views on this stock, hopefully you would have accumulated it in my absence. This is a good safe stock and one that my son holds on my recommendation.

If you missed my previous note on Telstra, or you would just like a recap, you can read it in Chart of the week: accumulate Telstra on the dips (10 April 2012).

If you followed my recommendation to buy any dip at $3.31, followed by a second parcel, you would have accumulated Telstra at:

• $3.31 in the morning of 19 April 2012.
• $3.39 in the afternoon of 19 April or morning of 20 April.

The stock is now at $3.65, up 10.3% on the first parcel and 7.7% for the second parcel. This is a great result for three weeks.

Here is an update of the chart with some new annotations I have prepared for you.

What I like about the chart

Telstra is now at about $3.65 (based on last close) and is still in a strong uptrend, with room to extend higher based off weekly indicators.

1) This stock has got time on its hands, the down-trend has now been well and truly broken, and it is free to roam up, pull back, and roam up higher. The 200-day moving average is comfortably pointing up, not in a vertical fashion, but nice and steady. Strategy, BUY THE DIPS.

2) If you like short-term trades, it is time to start thinking about taking some profits, to then re-enter again at better levels.

What I don’t like

On this stock, what I don’t like about the chart doesn’t really apply. Rather, it is what is making me think we’re near a top and in need of a pullback soon.

1) The 200-day moving average is at $3.24, which is 12% lower. It is getting high and only a matter of time before there is a reversion to the mean. Nothing goes up forever. Like a rubber band, there is a snap back when stretched too far. It has gone up in a virtual straight line from $3.18 on 21 March 2012 to now, gaining 15% in six weeks. There is potentially some more, but one needs to be vigilant now and not give back too much if you have bought well.

2) There are two upward sloping white bands that I expected it to trade within, currently bounded by $3.27 on the bottom of the range, just above the 200-day moving average, and the upper range of $3.63. We’re in fact trading above that upper expected range as the stock is extending itself in these times of uncertainty. This is the second thing that is making me not buy anymore for now, but think of selling down to take a profit.

3) There are no signs to sell yet here at the time of writing, but as soon as it appears, say a close below $3.62, or on hitting my little ‘r’ which is the first resistance at $3.73, whichever comes first, one ought to take some money off the table. Say 30%.

4) There is a chance that we can get to the two larger resistance levels marked ‘R’ on the chart, which are at $3.86 and $3.99. Should it get to these levels after hitting say $3.73, and there has been no pull back lower and no time for me to update, one ought to sell the other two thirds, one third each at each level. Cash in and wait. I would expect it to bounce around and present a better entry level again if it were to go ballistic up. Unlikely but in this climate, much is uncertain.

Please note: my views are not for the long term. My method results in views expressed that relate to an outlook that lasts weeks or at most months. For example, my view on Shanghai’s Index has for now been met and completed since 22 March 2012, 11 days later. Currently, in regards to Shanghai, I am in a cautionary observant position. Your utilisation of this information needs to take into account the time frame I set. The stocks recommended as “Steady as She Goes” may be held for the longer term, which for me means months.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.