Telstra?s share price vulnerable in the short-term

December 16th, 2006

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For those who bought Telstra T3, they made a giddy gain of 34% in one month. This gain in one month, through the extrapolation of 34% to the next eleven months, is equivalent to 6003.49% of return (compounded monthly) per annum! Of course, in reality, you will not get this kind of return for almost all of the stock market investments available in the universe. Perhaps you may find such a super stock, but we guess your chances of doing so are pretty much zero. On the other hand, if you are a very capable (or lucky) businessperson, you may achieve such a return through your own private business. But anyway, let us now all stop dreaming and get back to earth.

Today, for a change, we will delve into some technical analysis. Some analysts may scoff at technical analysis and place it in the same league as astrology. But for us, we prefer to be agnostic about it. The reason being, since there are so many traders in the market employing the use of technical analysis, it will become a self-fulfilling prophecy.

Looking at the chart for Telstra?s share price we saw that it rosed from a low point of $3.59 in 21st November to yesterday?s high point of $4.12. We guess those who sold Telstra shares at that low point must be kicking themselves now. Right now, Telstra?s share price is in a strong uptrend and has increased in volatility. However, our technical indicators are telling us that its momentum has already approached the overbought level. Therefore, it will be vulnerable to any less than favourable news in the short-term. At this point in time, short-term traders are most probably positioning their fingers at the sell trigger and will pull it at the first hint of a pullback in Telstra?s share price. Since the price of Telstra T3 instalment receipts tracks the price of Telstra shares, it will also follow suit in that event. Please note that we are not predicting the short-term fall of Telstra?s share price. For all you know, the upward momentum may continue. But in that event, it will even be more vulnerable to any short-term pullback.

However, for the long-term, our views on Telstra remained unchanged (see Is the Telstra T3 offering worth a buy?).

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