Watch Telstra like a kung fu master

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Telstra has had a wonderful run in a technical sense both up and down, and now up again. But can it go higher?

The top we had three days ago at $4.09 is a blow off and in my book, marks a top that will take some time to better. The stock now needs to consolidate around these levels and re-establish a base.

I thought the trade was over in June, but it wasn’t. The 10%-plus profit in less than eight weeks was wonderful, but it would have been a 20%-plus profit in 16 weeks when the stock topped out at $4.09, only three days ago.

The technical analysis of Telstra on 15 May 2012 foretold this possibility and I’m encouraged that my systems worked so nicely.

In real life trading however, one might have needed the patience and calm of a Shaolin kung fu master to reject a nice profit in eight weeks, under shaky global economic conditions, to hold out for a 20%-plus prize. In trading, a bird in the hand is always better than a bird in the bush. There are no regrets in bagging 10%-plus in eight weeks.

Now is time again to exercise patience. Sit there in quiet calm, like a Shaolin master, watch as the stock bounces around and wait to re-enter again.

Chart of the Week: TLS $3.73, ‘Patience Before Entering Again’

What I like about the chart

1) It has traded to the expected technical levels in accordance with the report dated 15 May with major resistance levels at $3.86 and $3.99. You can see on the chart that on the way up there was a pause around $3.86 and while $3.99 was broken, these two levels would have been ideal to take profit.

2) In the last three days, both these resistance levels have been swiftly rejected with a 9% fall from the high of $4.09.

3) I expect the stock to bounce off a resistance level of $3.73. A fall of 9% in three days is enough, and the level of $3.73 simply needs to be respected. We should have a pause around these levels. I don’t think it is time to buy again.

4) The stock needs to consolidate now. Having reached past targets of $3.31 along the way, and now hit major resistance levels up to $3.99. The trade is over for now.

5) A switch out of TLS represents a potential that the ‘risk on’ trades, like our beaten down miners, can begin a recovery process.

What I don’t like about the chart

1) Nothing. It has traded to script.
2) Unless one trades the stock, and can be very quick, there is the potential that this will come off back to $3.56 in the coming weeks, marked by the little ‘s’. It could possibly even dip to $3.46 as marked by the big ‘S’, also coinciding with the 200-day moving average.

Please note, that 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 regards 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 consider the appropriateness of the information in regards to their circumstances.

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