Credit Suisse: Telstra Corporation Ltd (ASX:TLS) could be ready to bounce

Our market is defying the big  sell-off on Wall Street but don’t get too comfortable as Credit Suisse is warning that the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is facing an impending drop.

The top 200 index is up 0.3% on Thursday as strength in big bank stocks and large cap resource stocks helped push our market into the black.

But Credit Suisse’s quantitative analysts believe our market is facing a significant pullback within a week but embattled Telstra Corporation Ltd (ASX: TLS) could enjoy a bounce.

Quantitative analysts use price movements and trading volumes to predict the near-term direction of stocks, and in this case it’s the Relative Strength Index (RSI).

“Since June 2016 the market has breached the RSI 70 level five times. The average consecutive duration above the overbought level is less than one week and each time has been followed by a rapid RSI drop back to neutral or toward oversold levels,” said the broker.

“In the majority of cases the index price has also retraced shortly after the market breached the overbought levels, which last occurred on the 20th and 21st June.”

RSI measures the magnitude of recent gains and losses over a specific period (in this case 14 days), and Credit Suisse believes that consumer staple stocks like Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES) could lead the falls given that they look overbought.

The insurance sector also looks vulnerable on this measure with Suncorp Group Ltd (ASX: SUN) looking particularly overbought.

This is the key reason why Deutsche Bank downgraded the stock to “hold” from “buy” as the stock’s recent outperformance has put its share price ahead of Deutsche’s fundamental valuation of the stock (click here to find out more).

But there are some stocks that are also looking oversold. Credit Suisse notes that the share price of our largest telco, Telstra, could recover from its sharp sell-off that has stripped 8% off its market cap in just a month when the top 200 benchmark has gained more than 3%.

Other stocks that could also enjoy a relief rally are hospital operators Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) and Healthscope Ltd (ASX: HSO), although I don’t believe the stocks can sustain any rally given the ongoing industry headwinds.

Any drop in the broader market though should be regarded as an opportunity for investors to buy quality stocks with an upbeat outlook.

From that perspective, you might want to read the latest report from the experts at the Motley Fool as they have identified some blue chips that are well placed to outperform.

Click on the free link below to find out what these stocks are and why they should be on your radar.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Wesfarmers Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!