Playing Both Sides of the Wireless Spectrum

• Posted by Greg Harmon
• on February 16th, 2011

Social media is a great means for sharing ideas, and building on them. Here is a great example. I was trading messages with Tommy Lackey (@gtlackey) on StockTwits about the tech sector vs the oil services sector yesterday. Out of this discussion he suggested that if I get tired of the oil services space there were some telecom stocks that looked interesting. After some further exchange a pairs trade emerged that we may be playing today.

The Set Up

The best looking chart on the list of stocks we chatted was MetroPCS Communications, ticker: PCS. Below is the chart.

PCS has been in a rising channel the last 3 months. The 50 day Simple Moving Average (SMA) has become the bottom of the channel and it is providing support. PCS is now moving higher within the channel with the backing of a rising Relative Strength Index (RSI) and a Moving Average Convergence Divergence (MACD) indicator that has turned positive and is crossing higher. Through the previous high of 13.68 it can continue to the top rail currently at 14.07 rail. On the other side of the spectrum the worst of the bunch was Telephone & Data Systems, ticker: TDS.

TDS has been falling since December and recently broke through support at 35.25 and the 100 day SMA. The RSI is still falling and sloped downward and the MACD is becoming more negative. This looks to continue lower. It has fallen out of the Bollinger Band though and has support nearby at 34.60.

The Trade

Rather than choosing one or both of these plays another way to participate would be to enter a pairs trade. Below is a ratio chart of PCS vs TDS.

This ratio has been in a rising channel and looks ready to make new highs. If it gets over 0.388 it can run up to the top rail. The MACD has recently crossed up and the RSI is rising, both supporting more upside to the ratio.

Trade Idea: Buy 5 lots of PCS and short 2 lots of TDS on a break of the ratio above 0.388 with a stop at 0.38

The trade would be to get long the ratio on a break to new highs and use the support at 0.38 from January as a stop loss. If it runs to the top rail near 0.425 this would be a massive winner, bringing in $3.94 to $4.38 per pair traded, with virtually no initial outlay. These types of trades can present great opportunities often with lower risk. Keep em in mind when scanning the spectrum.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus