Trend profile: Rogers Communications Inc.

Trend: The performance of telecommunications stocks through recent market turbulence shows the sector’s relative attractiveness blossoming in the spring air. While the S&P/TSX Composite index retreated below its trend line after losing over 300 points earlier this month, telecom stocks are up 7 per cent and are the best performing TSX sector group this spring.

 

The Canadian telecom industry is in a transition following the introduction of regulations allowing new wireless players like Globalive Wireless Management in the marketplace, but it remains dominated by incumbent integrated communications companies. Investors have been closely watching the stocks of BCE Inc. (BCE), Telus Corp. (T) and Rogers Communications to see if any show cracks in their armour. Judging by their recent stock performances and the absence of impending changes to telecom foreign ownership rules, it may be misplaced anxiety.

 

Shares of both BCE and Telus have been in strong bullish trends since the summer of 2009, now returning over 40 per cent to market timers who acted on the Stock Trends Bullish Crossovers of these big capitalization stocks then. The elevation of relative price performance this month shows that their bull trends will remain strong as more investors rotate toward the big telecoms. Reflecting the building trust in this group is Scotiabank’s Canadian Wireless Trust (CDW.UN), an equal weighted fund focused on the big three telecom providers. Although comparatively thinly traded, its units have advanced off their trend line with a relative uptick in trading volume in recent weeks.

 

The Trade: Rogers Communications’ stock made a strong technical move recently, too. Currently in a Stock Trends Weak Bearish category, its shares ploughed through resistance at the 40-week moving average trend line, although there was a slight pullback on low trading volume last week. The stock’s relative performance has been improving with the others in the sector, outperforming the labouring stock market for four straight weeks before last week’s stumble.

 

Although trading volume has not yet improved with the stock price – average weekly volume in the last two months is about half the average weekly volume recorded in the first quarter of 2011 – the share price is now in a position that will generate new interest should it rally back above the $38 level. Market timing investors will want to see trading volume improve, but Rogers is an appealing trade as its welcome revival inspires investors still stinging from the stock’s collapse last autumn.

 

 

The Upside: A long-term chart of Rogers’ share price indicates a consolidating pattern, something that often results in a definitive move north or south ahead. Market timing investors will help bid this stock higher should the current sector rotation take the stock clear of $40. Absent a big shift in stock market conditions, a 25 per cent advance from the current share price is the technical objective.

 

The Downside:  The flip side result of a consolidating pattern – the stock drops to the $35 mark – spells trouble. Downside penetration of the support line would return shares on a bearish path.