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CHART ANALYSIS


Canadian Telecomunications Giant Looks Topped Out

05/19/04 04:03:23 PM
by Gary Grosschadl

TELUS Corp., the largest telecommunications company in Western Canada and the second largest in the country is looking very top heavy.

Security:   T.TO (TSE)
Position:   Sell

The weekly chart for Telus seems to bring clarity to the stock's outlook. It is always wise to consider long-term charts as sometimes the bigger picture brings a better focus. In this case the weekly chart shows potential weakness that could entail a sizable correction.

The first sign of topping danger came early in the year with a candlestick warning. Whether you call it a doji or a spinning top, both can warn of a change in bullish momentum or that a stock is reaching a topping phase. The ideal doji has the same open and close but this is close enough for many candlestick traders to take heed. An argument for a spinning top can also be made but again it is not the classic looking formation with a diminutive body and fairly equal upper and lower shadows. Either formation suggests a change in bullish momentum, which often results in establishing a top.

Weekly chart for Telus Corp.
Graphic provided by: Stockcharts.com.
 
In a side note, another candlestick pattern is worth mentioning - a harami pattern. This occured at the V-bottom with a bearish bottoming candlestick followed by a (bullishly white) candlestick contained within. This indicates a halt in bearish momentum, resulting in a reversal pattern or a drift sideways. Many traders consider V-bottoms unreliable but this was not the case here as a very good upleg developed.

The other danger sign is that the stock is flirting with an important and often watched level - the 200-period moving average, in this case the EMA (exponential moving average), which I prefer over the SMA (simple moving average). When there is not a clean or definitive bounce off this key level, I begin to suspect a coming failure.

Several displayed indicators such as the MACD (moving average convergence/divergence) and the RSI (relative strength index) also hint at downside implications. Note the negative divergences on these indicators. As the stock headed higher, these indicators refused to do likewise. This is often a precurser to downside movement.

A surprise move above $25 would negate these bearish concerns for now but a move south of the 200-week EMA, currently at $23.42, could mark a swift decline. Downside targets would likely be $20 and then $15-$17, a previous congestion zone.



Gary Grosschadl

Independent Canadian equities trader and technical analyst based in Peterborough
Ontario, Canada.

Website: www.whatsonsale.ca/financial.html
E-mail address: gwg7@sympatico.ca

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