On Thursday Telstra reported a 12% drop in its half year earnings ending December 2016.  This took the market completely by surprise and the stock was savaged by investors as it fell 4.5% for the day on extremely high volume.

Telstra which is the largest market cap Telco in Australia is quite popular with retail investors and super funds because of its large dividends paid out annually. The key question going forward is whether investors will still support the stock as it struggles to grow its profits.

Today's chart review of Telstra we look at all 3 time horizons Monthly, weekly and daily charts to determine where Telstra could go next.

Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

Stock Review - Telstra (TLS)

Monthly Chart

With just over half the month completed in February it appears that Telstra will close below a key support line of $5 a share. If this is to occur by the end of the month this will be quite bearish for Telstra, as the $5.00 level has previously held up on a monthly chart when the price reached or fell below these levels. Since the stock is trading below the $5 level I have labelled this level of support now as its new resistance level.

Momentum which I have circled in the chart below is currently negative and has been negative for over a year now. This indicates the weakness in the stock since Mid 2015 is confirmed by the momentum indicator as well. The monthly stochastic indicator which is another momentum indicator has also turned bearish again confirming the break of the $5 support level.

If the $5.00 a share support level has been broken and confirmed by the end of February, the next stop for Telstra is $4.50 support on the monthly chart. This new support level is another 34c away from the current price on Friday's intraday price of $4.845.

Telstra Already In Long Term Downtrend Before Profit Announcement

If you take another look at the monthly chart below you will notice that Telstra broke its long term uptrend back in October 2015. Since breaking the uptrend line the stock bounced up and down for the last 18 months, before falling below $5 a share this week.

Weekly Chart

The picture does not improve for Telstra on a weekly chart with the stock failing to move toward the $5.5 downtrend line. Instead because of yesterday's profit announcement the stock has now formed a steeper downtrend line shown along the circle on the chart. If this down trend line holds it would mean that in the short term we could see sharper declines for the stock once the stock has gone ex dividend.

I have circled the weekly stochastic indicator to show that it too has turned down from close to its peak levels. This suggests that the trend has room to move and will continue to decline lower over the medium term.

Moving Average Bearish Cross

Telstra's weekly moving averages formed a bearish cross back in September last year when the 10 week moving average closed below the 50 week moving average. Since this is a weekly chart the moving averages crossing over late last year confirms that Telstra is in a medium to long term down trend phase.

In addition the current price is sitting below both moving averages which is another bearish indicator for the stock.

Just like the monthly chart the next level of support for Telstra  on the weekly chart is $4.50. Failure to hold this level would see Telstra move towards $4 a share. Considering Telstra still has a considerable decent dividend attached to the stock, it would be unlikely to see Telstra move below the $4.50 level without a further deterioration in profits and or dividends.

Daily Chart

Gap Downs On Heavy Volume Never A Good Sign

I have circled on the chart below the big gap lower where Telstra opened at yesterday after disappointing the market expectations on profit. The volume reached just over 118 million shares traded yesterday compared to the daily average of 28 million shares. When ever you see a massive increase above average volume like Telstra achieved yesterday coupled with a big gap down, the prospects for the stock in the short to medium term are usually never positive for the price.

Days before the profit announcement you will notice the stock got close to the $5.30 resistance level but failed to reach it. This was bearish indicator for the stock even before the announcement.

Now that the stock fell sharply the daily chart moving averages have formed a bearish cross as the stock's next support level is $4.70 a share.

Similar to the monthly and weekly chart the momentum and Stochastic indicators have confirmed the bearish move lower as they both are signalling overall weakness in momentum.

Conclusion:

After looking at all 3 charts above, there is no positive or bullish indicators for the stock on any of the time horizons. With the most likely direction for the time being to continue to head lower to the next level of support. The only bright spot for the stock outside of the chart is the big dividend that now looks more appealing if the stock can sustain the dividend over time.

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Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

Domino Pizza (DMP) Chart Review

NB: The charts shown in this review were taken prior to the close of trade on the 7/12/16.

Domino Pizza is one of those stocks that if you never owned it wish you did. It has become one of those amazing success stories, where you can start off as a small company with a big vision and grow into a multi-billion dollar company.

Domino Pizza has become a fast growing company with consecutive years of strong profit growth that now spans multiple countries. Due to its amazing growth the stock has gone from below $10 a share only a few years ago, to a stock that reached over $80 a share in August this year.

Has The Dream Run Ended?

Observing the monthly chart below of Domino Pizza, it would appear the stock looks to be in trouble as it's in the process of breaking its second uptrend. If you take a closer look at the chart below, you will notice that Domino's had previously accelerated its price growth on 2 occasions from its original long term uptrend. (See chart trend lines below) Currently in December it appears that the stock is slowing down considerably as it heads back to its original long term uptrend that began in 2013. (See chart)

Although Domino's would be considered to be in a very strong uptrend based on its long term history. The current price action suggests that if Domino's was to trend towards its original long term uptrend, the stock has a long way to fall before it reaches its destination.

The nearest support line to watch out for Domino's on the monthly chart is at the $63.90 level. If the stock closes below the support level on a monthly chart, it will confirm the break of its second uptrend, with little support for the stock to head lower.

I have circled momentum on the chart to highlight that even though it's still positive at 7.30 it has fallen considerably from the highs as it heads toward zero momentum.

Since its still early in December it would be appropriate to take a wait and see approach towards the end of the month. NB: Global and Aussie stock markets are quite bullish presently heading into the Christmas rally, so to see Domino's weak in this environment doesn't bode well for the stock.

Weekly Chart - Key Levels To Watch

The weekly chart shows the stock is at a current key level in terms of trend and support levels. If Domino Pizza were to close below the $64.40 level by Friday's close it would confirm the break of the long term weekly trend as well support. This would be an extremely bearish sign for the weekly chart.

Provided we close below the nearest support, the next step for Domino's is $60.50. With momentum at negative 7.67 and heading lower the probability of break of trend on the weekly chart is high.

If buyers were to step in by the end of the week and hold support of $64.40, look for the stock to move towards resistance level of $70.30 and make another attempt to close above this level.

Daily Chart - Multiple Bearish Indicators

Domino's Pizza on a daily chart is at a critical price level, as the stock approaches support of $63.85.

Currently the price is below the 10, 50 & 200 day moving average suggesting the stock is under heavy selling pressure. Many traders and investors use the 200 day moving average as a key indicator for a stocks trend.

Momentum is negative 5.05 and falling, showing the selling strength is accelerating and supporting the price lower from here.

As previously mentioned since the stock is weak in an overall bullish environment for Aussie stocks, suggests that the stock is no longer popular to own for its potential share price growth prospects in the short to medium term.

Potential Death Cross

Watch the support level of $63.85 over the next few trading days for this stock, because if the stock continues to fall from these levels it will pull the 10 & 50 day moving average below the 200 day moving average. If this occurs it would form what traders call a 'death cross' which ultimately confirms that the stock is in a downward cycle in price.

Overall the stock appears quite bearish on all 3 charts presented, even though the stock is still comfortably above it long term trend on the monthly chart. Over the longer term the stock could resume its upward trend and respect its longer term trend, however over the next weeks and months may continue to struggle relative to the performance of the ASX market.

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The Perfect Storm Set To Pop Aussie Apartment Bubble Bringing Down The Economy With It

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Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

The Aussie apartment boom that has turned into an epic bubble with record sky high prices, is showing all the signs for the perfect storm which will ultimately pop the apartment boom bubble. With the popping of the apartment boom, it will simultaneously bring down the Australian economy, as the apartment market is set to have a sizeable correction in 2017 and 2018.

A short Look At Australia's Real Estate Market.

Australian real estate prices have been going up for over 25 years with hardly a pause in between since the late 80's. The last time real estate prices fell considerably was when Australia last had an official economic recession back in 1987, when interest rates skyrocketed to around 17-18%.

The chart below show the price growth of real estate, rents and CPI since mid 1987. Initially the price growth of Australia's real estate market climbed steadily taking 11 years to double in 1988. From there the price growth continued to accelerate with the next 100% increase in price taking 4.5 years to reach.

An interesting observation on the chart below is that real estate prices have risen by over 700% since 1987, yet rents have risen  just under 300% over the same period. This chart clearly shows that the majority of the price growth was not supported by a fundamental increase in rents to support the higher prices, but rather an massive surge in mortgage debt over the same period drove prices higher.

Rising Credit Leads To Booms & Contractions In Credit Lead to Busts

Professor Steve Keen in the interview shown below highlights his own reasons why he see's a recession coming in 2017 for Australia.

Steve highlights a number of reasons for his prediction, including a deteriorating terms of trade, the ending of the mining investment boom, the Government's pursuit to cut spending and a reduction in foreign buyers for real estate among others. However, the most important reason is a deceleration of credit / mortgage debt. Based on Steve's research and economic models the deceleration of mortgage debt growth is the leading cause for all economic downturns globally including the US, Japan and Europe economic recessions, with a correlation close to -1. What all his research showed is with the deceleration of mortgage debt growth, lead to a collapse in real estate prices which then lead to an economic recession in those countries.

Due to this research, Steve believes Australia will react the same way as other countries based on slowing growth in mortgage debt. Especially, as the conditions have already begun to slow based on the bank's tightening their standards overall. However, most of the lending restrictions imposed from the banks are for off the plan apartments and existing apartments within most major cities around Australia.

Given Australia was recently ranked number 4 in the world in the UBS global real estate bubble index, see: Australia's debt addiction fuels record real estate bubble, its easy to see that prices could fall over 20% as lending conditions continue to tighten and their effects take hold.

Why Are Banks Tightening Lending Conditions With Record Real Estate Prices?

The simple reason is that the banks do not want to be caught in a credit crunch like they faced back in 2008 and 2009 where they had to have the RBA and the US FED provide considerable financial assistance to keep them afloat.

Right now the banks can see what everyone else can see if you look at all the data publicly available. Australia will face a major oversupply of apartment dwellings over the next 1 - 3 years from a major ramp up of approvals of apartments. The growth of approvals over the last 7 years which you can see in the chart below, is leading to a big jump in the construction of apartments with a number of them being competed in the next 18 months.

Due to the rapid increase in approvals there has been a massive spike of cranes currently being deployed in Australia, to handle the apartment boom that is currently taking place. As you can see below in the chart Sydney and Melbourne are leading the way in Australia, dwarfing most major cities in the US including New York and LA.

With all the current construction for apartments taking place from the buildup of approvals, especially in the last 3 years, Australia is facing a glut of new apartments that are about to be completed in 2017 and 2018.

Knowing the upcoming glut of apartment completions is about to come available on the market soon, the banks have taken action to protect their capital by providing most of their tightening around new and existing apartments within the CBD's of Sydney, Melbourne and Brisbane where most of the construction has taken place.

Highest Housing Completions = Biggest Housing Price Fall

The chart below shows a comparison of house prices in Australia, UK, Spain, US and Ireland with an accompanying housing completions chart.

The most obvious data from the chart is both Ireland and Spain had the biggest fall in prices during the GFC in 2008 relative to the other countries shown. Those 2 countries also had the largest ramp up of new housing completed from 2000 - 2007.

Surging Bond Yields Leads To Higher Mortgage Rates In Australia.

Back in October US Government 10 yr bond yields were sitting at around 1.55%. Fast forward one month and rates are now sitting at around 2.3%.  A 0.8% increase from the October levels (see chart below). The reason why this is a big deal, is that the US Government bond yields are what are utilized to benchmark most of the different types of retail and commercial loans.

In Australia the banks also rely heavily on overseas markets and especially the US markets to provide the necessary funding to support their loan book. So as bond yields have skyrocketed in such a short period in the US, it has already led to the banks in Australia lifting rates by between 0.20% - 0.60% on their fixed loans as their funding costs have jumped dramatically.

With mortgage rates rising and lending conditions being tightened its becoming more difficult for developers to sell their off the plan apartments as investors find it more difficult to access bank lending to finance their purchases, resulting in a slump in demand for off the plan apartments.

Melbourne Developer Offers $21,000 To Encourage Buyers

In an attempt to lure buyers to a new off the plan development in Melbourne, a large well known developer is now offering $21,000 to investors in an attempt to sell their $420,000 1 br apartments in Southbank Melbourne. The idea is to match the investor or first time buyer's 5% deposit of $21,000 to  least assist them in meeting a 10% deposit.

The problem that this Melbourne developer and other developers will find, is even with this huge financial incentive, many of the banks in Australia have lifted their minimum deposit requirements for off the plan apartments in major cities to between 15% - 25% deposit.

Apartment Bubble Bursting Leading To Australian Recession

Similar to Professor Steve Keen's prediction that a recession is coming to Australia in 2017 or early 2018, I also believe that the perfect storm of conditions are developing that will soon pop the apartment bubble that has been taking place in Australia.

When the correction in apartment prices takes hold, it will have a domino effect on the Australian economy, leading to a contraction in economic activity in Australia. The reason for this is because the real estate industry and related industries now has the largest contribution to GDP at around 28%. (See chart below)

With record amount of apartment construction taking place over the last few years, fueling a considerable amount of GDP growth, I believe the slowing of the construction industry will start to subtract heavily on GDP growth in 2017 and 2018 leading to Australia's first recession in over 25 years.

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The ASX 200 dropped around 120 points or 2.2% today, breaking its 7 month uptrend that began in early February following the sell off in the US markets on Friday over rate rise concerns. The ASX 200 had previously climbed by over 900 points over the 7 month period from the February lows of 4707, to the high for the year of 5611 that was reached on the 1st of August.

You can see within the chart below the clear break of its uptrend circled in black, and the next support level around 5050 which is 169 points away from today's closing price of 5219.

The earnings season finished 2 weeks ago, however the ASX 200 has experienced a series of down trading days from the 5550 level to today's level of 5219, as the market digested sub par earnings results, as well as several companies going ex - dividend with decent dividends provided to shareholders.

If the ASX 200 is unable hold the support level at 5050, the next level is around 4770/75 which is unlikely to be reached in the short term. With the more likely outcome the ASX 200 will move to the 5050 area and bounce off that level initially, as the ASX 200 will consolidate within the new support area.

On the remote possibility that the FED actually raises rates on the 22nd September to 0.50%, then all bets are off with the likely reaction from the markets to be severe, as the markets would fall sharply similar to the volatility that was experienced at start of the year, which you can view on the chart below.

Following up on the recent review of bank stock CBA on a recent post see - Stock In Review - Commonwealth Bank (CBA). I have added today's updated chart of CBA which shows that during the day the stock fell below the strong support level of $70.00 to a low of $69.71. However later in the afternoon it recovered to close at $70.22 which is just above support.

Over the next few days as market volatility increases on international stock markets, this level of support will be important for CBA to maintain.

Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

In this short video Satyajit Das, gives a frank and dim assessment on the future outlook of Australia and their prospects for jobs, income levels and life in retirement.