Chart of the week: Is BT a super buy here?

by from interactive investor |

Is BT a super buy here?

As the UK's dominant telecoms company, I last covered BT on 18 December and my conclusion was that the shares were very likely near a significant low.

Here is the very long term monthly chart updated:

Source: interactive investor      Past performance is not a guide to future performance

I have a complete five Elliott waves down to the post-Credit Crunch 2009 low at 70p which occurred on a massive momentum divergence. The significance of such a divergence with price is simply this: it indicates that as the market is making new lows under the wave 3 low, the selling pressure is gradually drying up until at one point - at the wave 5 low - the buying pressure starts to win out over that of the sellers.

There is a clear divergence between the price, which is making new lows and momentum, which is not.

And with a declining selling impetus and more buying desire, the market rallies - and that happens usually when things are looking their darkest. Do not underestimate the power of this simple indicator! In fact, momentum was one of the first technical tools to be widely used by analysts. I do not need any other tech indicator.

Chart of the week: A potentially huge moment for BT shares

And after the wave 5 low was in, the way was clear for a normal A-B-C rally phase - and that got started in 2009, nine years ago. We have put in waves A and B already and we are likely now at the start of wave C up.

I believe wave B is all but complete because price has met the lower tramline, which lies at a Fibonacci 62% retrace of the purple A wave. This is the most common retracement if the market is about to turn.

Here is wave B on the weekly:

Source: interactive investor      Past performance is not a guide to future performance

B waves are always in threes and this purple one fits the bill beautifully. I also have a pretty convincing tramline pair. With the market now meeting the long-term blue tramline and having done enough to consider the purple B wave compete - and with a strong momentum divergence, odds are rapidly growing we are at or very near to the major low at around the 240p level.

Of course, few have a kind word for the company. Press reviews of its pay-TV packages is mixed (to say the least). Openreach, the fibre and fixed line telecoms business is now being run separately, but it is not clear how that will impact the top and bottom lines.

So, with sentiment still plumbing new depths, do we have an ideal 'buy low, sell high' candidate?

If my wave analysis is correct, it would appear so. More confirmation would appear if/when the market pushes above the upper tramline in the 260p area, and that would be an excellent place to enter. In the meantime, we could see a move down to the 230p area first.

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