The overall market has had a rough time of it since the beginning of September and Telstra has not been immune. Despite being renowned as a defensive, the share price of Telstra from peak to trough in the last two months has seen it fall nearly 9%. After running up and paying a hefty divided in August, Telstra announced a $1 billion buyback. The buyback had been so popular with investors that it was oversubscribed by nearly 70%. With shares being bought back at $4.60, it represented a discount of about 14%. However, with a fully franked dividend of $2.27, the amount received back by investors could potentially prove lucrative.
With some investors taking a view that markets could recover from here, some will want to know what the charts are saying about a defensive stock such as Telstra. With the share price having fallen dramatically with the broader market, at what point does the share price start to look attractive?
Sometimes stocks will trade within a fairly defined range for a period of time. BHP has famously spent most of the year trading between about $35 and $39, before recently breaking down from that. Telstra has also been in a range for the last year and a half. However, the range itself has been trending higher over time. As seen on the chart, the stock could have potentially been bought at the lower limits of this channel each time and it would have seen the stock trade higher. It neatly satisfies the definition of an uptrend which is a series of higher highs and higher lows.
Once again the stock is at the bottom of its range. There appears to be some support here and we may now get a bounce in Telstra towards $5.50. However, the next dividend is not due until February, so we do not have the prospect of an upcoming dividend to keep the share price additionally supported. So after bouncing here in the short term, there is the potential for Telstra to then dip down towards lower support in the $5.10 – $5.20 range. That would be consistent with a volatile market that is beholden to movements in the currency. This level was derived by noticing that it appears to have been “touched” a few times by the share price. Also, it represents the previous low in the recent uptrend. Telstra is currently on a yield of about 5.7% plus franking.
|Michael Gable is a member of the Australian Technical Analysts Association (ATAA). The ATAA is a not-for-profit association that has the primary aim of promoting the correct use of technical analysis. Membership consists of both professional technical analysts and private individuals who use technical analysis to assist with decisions related to trading and investing in the financial markets.|