Telefonica S.A. offering a trade to the upside

Jan 18th, 2013 – Comment

To your question yes there is a buy here but not a buy and hold.


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Hi Lou,

Do you think TEF is a buy?

Tom

 

Hey Tom,

Thanks for the assignment. I last examined the case for Telefonica S.A. (TEF NYSE) on February 27, 2012 when the shares were trading for $17.25. Geoff was attracted to the 12.2% dividend yield but wanted to know if it was an opportunity or a trap. The investigation conducted on his behalf identified that there was no need to be a buyer at that time. The lure of a generous dividend notwithstanding the shares were in a downtrend and had to build a base of support and break above its 50-day moving average to take some of the risk off the table. Unfortunately the shares breached support and went on to plumb new depths.

A review of the charts will help identify whether TEF is a buy based on technical evidence at hand.

The three-year chart outlines the selling pressure that the stock has struggled with since May of 2011. The inability to build a base and break above the 50-day moving average in February of 2012 led to selling pressure that drove the shares to a 52 week low of $10.06 in July of 2012. A very bad beat for those who anticipated that the bottom instead of confirming it.

What is also evident from the chart is that the downtrend has been broken and a new advance has emerged. It’s not the prettiest advance I have ever seen but it has generated a healthy return off the July 2012 lows. The MACD and RSI signalled a $1.50 advance off of $13.00 in November. The question now is if there is more gas in the tank?

 

 

 

 

 

The six-month chart provides a close up of the advance that started in November and the buy signal generated by the MACD. At this point there is the beginnings of a golden cross forming. There is a bit of resistance at $15.00 but if TEF can clear that hurdle it can run to $16.50 without much in its way. To your question yes there is a buy here but not a buy and hold. Trade this one for profit but watch the foreign exchange as this one is priced in U.S. dollars. The dividend yield is 10.26%.

 

Make it a profitable day and happy capitalism!

 

Categories: Telecommunications
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