September 4th, 2006
In my May 31 posting, I wrote:
“Can anyone explain what’s happened to foreign telecommunications stocks over the past several weeks? I looks as if someone turned the lights off on May 10 and, like lemmings, they followed one another over the edge of a cliff. IBD’s Telecom-Foreign Services Industry Group includes 58 companies of which 54 are traded on one of the major exchanges; all but four have declined since May 10. While the SP-500 declined 4.76 %, the 54 foreign telecom stocks have dropped an average 13.01% over the same period.”
Well, I can guess! I believe the sector has bottomed and is about to move significantly ahead. The Group has moved up from ranking 114th a month ago to 47th today in IBD’s list of 197 Industry Groups. While the Group’s chart doesn’t appear to be that compelling, individual stocks are poised and on the verge of breaking through resistance level trendlines that stretch back to several quarters:
For example one of the most consistent and best performing stocks since it broke out of a long-term triangle formation in 2003 has been Vimpel Communications (VIP), a Russia-based provider of wireless telecommunications services in Russia, Kazakhstan, Ukraine, Tajikistan and Uzbekistan. (Note, the link for each name is to the Google Finance profile page for each company.); the stock has again increased sharply over the past several weeks:
Could VIP be a precursor,or model, of similar moves for other publicly-traded companies in the Group. The world-wide hunger for increased communication (cellular, broadband) is contagious. The US has seen significant reconsolidation in the telecommunications industry among the baby-bells over the past several years, along with foreign acquisition of and investment in them by non-US telecom companies. Setting aside the local national restrictions, could the moves for increased telecommunication consolidation to reduce costs, improve services, reduce capital requirements, implement technological changes lead to Industry consolidations around the world as it has here in the US? Does the evolving chart patterns of foreign telecom stocks portend a round of M&A activity that will lead to higher stock prices for the whole industry?
There are 54 such companies traded in the US; many have carved out extremely interesting chart patterns (Note: because I’m talking about patterns that have been formed over quarters and years, not days or weeks, it could take several more months for the stocks to start making their breakout moves and the story behind the charts to unfold. So patience and waiting for breakout above these resistance levels is suggested.)
Here are several examples of longer-term charts with the support and resistance trendlines noted:
The stock has been forming a converging triangular wedge since the adr’s first started US trading in 2001.
Another Brazilian telecom service provider. Notice that it too has been forming a triangle base since 2001.
An integrated telecommunications services provider in Korea
A provider of fixed and mobile voice related services, Internet protocol/packet communications services, sales of telecommunications equipment, system integration and other telecommunications related services in Japan.
Again, these are presented only as examples; there are 54 companies in this Group and, eerily, many have chart patterns that look similar to the ones shown here; others have shown either consistently increased or shown substantial increases over the past several of months. They are Telecom Service Providers in, for example, Hungary, Portugal, India, Germany, Spain, Indonesia, Argentina, Brazil, England and China.
However, I don’t want to overstate my case. Yes, it’s true that the fluctuations of international stock markets now move more in tandem (diversification in international to reduce volatility may be yesteryear’s strategy). One talking head spoke about an upcoming consolidation in gold stocks; who would have ever thought there’s enough incentive for industry consolidation in precious metals? And when it comes to Telecommunications-International Service Providers, I think there’s more brewing here than we will only learn about later.