5 Telecom Stocks to Dial In
Due to the popularity of smart phones and other wireless devices, you might think that the telecom industry should be booming, the reality is that the telecom sector continues to underperform the broad markets. 2013 was a strong year for stocks with the S&P500 gaining close to 30%.
The telecom sector did not perform as well, according to Morningstar the sector was up around 14%. So far this year the same trend continues, to date, the S&P500 is down 0.96%, and the telecom sector dipped even lower down 5.11%.
While investors may dismiss these markets as opportunities to buy the stock, trading option provides a much better quality approach.
Sprint Corporation (S:NYSE)
Sprint (S:NYSE) has been in an up trend for the last two years, increasing in price from around $2.50 in 2012 to its current price around $8.00.
Throughout that time stock holders have seem some wide fluctuations from highs of $11.40 in December 2013 with sharp corrections to around $8.00 just a few months later.
For the long term investor, this stock can cause anxiety having to hold through the major price swings we have seen.
As can be seen on the bottom of the chart volume has been lower than average recently. Interestingly enough there has been low volume on both up moves and down moves over the last few weeks.
Even though S has been in a clear up trend since May of 2013, the weakness in the sector is weighing on the performance of S, because of this downward pressure I am neutral on S at this time.
One strategy to trade S at this time would be to buy an iron condor with the expectation that price will remain sideways over the next few weeks.
T-Mobile (TMUS:NYSE) has also been in an up trend since May of 2013 increasing from around $18 to $32.
At the present time TMUS is consolidating and has closed below the 21 EMA on the weekly chart, a bearish sign. In my opinon I would expect that if the S&P500 weakens that we could see TMUS fall to the 100 EMA around $25.
TMUS has large swings up and down in price much like S, however if you look at the long term weekly chart TMUS has respected the weekly 21 EMA around $30, and has only recently broken resistance and headed towards support at the 100 EMA around $25.
Volume has been increasing on down turns and decreasing when price has moved up. If TMUS can retrace above $25 and remain there then the up trend may resume, but due to the sector weakness and the general weakness in the S&P500 recently I do not believe that this retracement is an opportunity to purchase TMUS. One strategy to consider would be to sell a call credit spread above the recent highs around $34, with the expectation that price is going to head lower.
United States Cellular Corp (NYSE:USM)
The charts for United States Cellular Corp (NYSE:USM) look weaker than the charts for S and TMUS.
Price has seen wide swings and has been chopping around for the last few years.
Right now price looks to be headed lower, if the resistance from the 21 EMA around $41.50 holds then I see price heading back towards $36.
The retracement from $36 to $41 at a time when then S&P500 sold off could be a sign that there might be a short covering rally in the short term.
I would wait until there is an indication that price will remain below the $41 resistance level before I initiate a short position.
One strategy to consider would be to buy a deep in the money put (around delta 70 or 80) expecting the weakness to continue over the next few weeks.
Much like the other names in the telecom sector, the price action of AT&T (NYSE:T) is moving sideways to down.
Since January price has been consolidating between $32 and $36 with a downward bias. If the 21 EMA holds at $34 then we might see price increase to $37 however with the weakening S&P500 I believe it is more probable that we will see this stock revisit $32. T in my opinion is still in a downtrend making lower highs and lower lows.
With price currently above the 13, 21 and 100 EMA's on this weekly chart, I wouldn't initiate a short position until price has broken $34.
With the weakness in the trend, I would sell a call credit spread with the anticipation that price will go down over the next few weeks.
Of the five charts I have reviewed Verizon (NYSE:VZ) has the best trend of the group.
VZ has fallen below the weekly 21EMA and above the 100 EMA being squeezed between the 21 and 100 EMA's. I believe this chart is proving a movement to the downside is more probable. Even though a quick glance at this chart might make a trader believe that a pull back to the 100 EMA at $46 could be an opportunity to buy, a more detailed look shows numerous examples of weakness. It should be noted that if price breaks $46 there is no support until it moves down to a previous level of consolidation at $42. If you draw a trend line from the highs at $54 through the high around $52.00, then $48 becomes resistance. and the downtrend should continue. Volume has been fairly consistent but increasing lately.
I am waiting to see what happens over the next few days to a week, if there is a bounce off of $46 then I would be comfortable initiating a long position once price is above the 21 EMA around $48. The trade would be a short-term trade with a target just below $52. One strategy to consider would be to buy an at the money straddle with the anticipation of a break out, the straddle will allow you to capitalize on a breakout without having to know the direction of the breakout.
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