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The Rogers sign is seen atop the Rogers Communications headquarters building in Toronto in this file photo taken April 25, 2012. (Mark Blinch/Reuters)
The Rogers sign is seen atop the Rogers Communications headquarters building in Toronto in this file photo taken April 25, 2012. (Mark Blinch/Reuters)

Schizas’ Mailbag

Rogers shares are flashing bearish signals Add to ...

Lou,

I recently bought a small position in Rogers just before the last bit of news of trying to get a fourth player in the market again, which caused the stock to dip. I was hoping to get your analysis on this stock and whether there is much more downside risk associated with it.

Thanks,

Tbone

Hey Tbone,

Thanks for the assignment.

Rogers Communications Inc. is one of the major players in the Canadian telecommunications sector that has had to endure another attempt by the federal government to engender competition. For those of us who remember the days when the regulators allowed the three major carriers to scour the landscape and buy up competitors in an effort to consolidate the sector, it does seem a bit odd. But that is the nature of regulated industries -- eventually there comes a day when the regulations change and the players have to adjust.

Investors also adjust to changes in the environment and in the case of a threat of increased competition the decision is usually to rebalance portfolios. In a mature, regulated market the introduction of a new competitor will tend to result in a further splitting of the existing market not the creation of growth in that market. The last attempts by the Canadian regulator to introduce competition by inviting a U.S. based carrier got the incumbents manning the ramparts to fight off the threat.

An inspection of the charts will help identify further downside risks to your investment.


The three-year chart highlights a downtrend that started in April of 2013 as the shares touched a high just above $50.00. The MACD and the RSI generated sell signals that were confirmed as the shares retreated to below $40.00 by late June of 2013.

The downtrend line has been intact for over a year and has provided resistance to any advance. The stock tried to rally in September of last year but hit the downtrend line in December and resistance formed at $48.00.

There is support forming near $42.00 which appears to be the base of a descending triangle. A descending triangle is a continuation pattern which intones that further selling may follow, demanding investor vigilance.


The six-month chart provides a close-up of the resistance that is now in play along the 50- and 200-day moving averages. What is also in view is the sell signal generated by the MACD and the RSI in May as the stock hit the downtrend line. From a technical perspective the biggest risk to your investment is the descending triangle pattern described above.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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