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Is Vodaphone Worth A Buy?

11/05/13 04:40:17 PM
by Koos van der Merwe

When a company becomes a take-over target, is it worth a buy or should you wait?

Security:   VOD
Position:   Hold

Vodafone hit everyone's attention on news that AT&T may be interested in acquiring the company. AT&T is actively seeking a number of strategic acquisitions. However, Vodafone may have its own plan for expansion of its mobile technology coverage in over 30 countries. The AT&T deal may not be as trouble free as expected. AT&T, the second largest provider of cell phone service in the United States, has shown an interest in snapping up smaller wireless companies. It has spent the last year searching throughout Europe for likely candidates before settling on Vodafone. In July 2013, the company purchased Leap Wireless, but the deal has still not closed.

Figure 1. Daily Omnitrader chart.
Graphic provided by: Omnitrader.
The chart in Figure 1 is an Omnitrader chart with the VOTE line giving a buy signal on June 25, 2013. The are a number of short sell signals as shown on the chart, but the price only broke below the Verve Trailing Stop on August 16, 2013 and then gave a new buy signal on August 28, 2013. The price rose once again only breaking below the Verve trailing stop on October 8, 2013 and then gave a fresh buy signal on October 10, 2013. Although it tested the Verve trailing stop on October 31, 2013 it did not signal a sell. The Vote line is still suggesting a hold. Would I have bought the share on June 25, 2013? Definitely yes, because the share price was testing the bottom external band. The advisor rating was also 73, a strong rating. I would have also sold every time the Verve trailing stop was broken but would have bought with every new buy signal and would be holding even now.

Figure 2. Daily Elliott Wave count.
Graphic provided by: AdvancedGET.
Looking at the chart in Figure 2 of Vodafone, an Elliott Wave count is suggesting that Vodafone is in a WAVE III with a WAVE IV that will retrace to somewhere between $36.10 and $34.16, the 4th Wave of lesser degree. The RSI indicator is at overbought levels, and is trending down. The chart is telling me not to buy at the moment, but to wait.

The chart is suggesting that AT&T's purchase may not happen in the near future. That the chart in Figure 2 is suggesting a correction is on the cards means that AT&T may not find it easy to purchase Vodaphone, and may have to up their price. The chart is suggesting that I wait awhile before making a purchase. I will closely watch the RSI indicator, and look for a buy signal, if and when.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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