TheTrendLineInvestor

Is FTR A Good Investment Candidate ??

NASDAQ:FTR   FRONTIER COMMUNICATIONS CORP
This is a WEEKLY chart of FTR             . You are looking at about 7 years of history...

FTR             just recently bought some assets from Verizon. I would say the stock ran up on the purchase and now it is falling back to the uptrend line that started back in early 2014. Is FTR             a good investment candidate at this point in time?

Let's look at the best part of the chart first. Yes, it is the downtrend line. A SEVEN year downtrend line! If you are going to consider FTR             a good investment candidate it can' t be in a downtrend. I would comfortably say the downtrend is over. I could be wrong but I will feel pretty comfortable as long as the price stays above uptrend line #1.

What is the next thing I like about this chart? I like that there are 3 uptrend lines I was able to draw. Each of them is steeper than the last. Now this won't go on forever but it tells me that the amount of buying in the stock is increasing and the amount buyers are willing to pay is also increasing. Maybe it will just stay at the current pace and the price will follow uptrend line #3. If that is the case, then I would expect to make >5% per quarter including the current dividend. Yes, I said "greater than 5% per quarter".

This idea is sounding way too rosy at the moment so lets talk about the risk. The risk is that FTR             is not going to stay above uptrend line #3. There is also a risk that it won't stay above uptrend line #2 or even uptrend line #1. There are many ways to protect yourself between now and those possible breaches but anything is possible. Your first high probability downside bet would come into play if FTR             closes below uptrend line #3. The longer the price stays below uptrend #3 the better the chances are the stock price will continue to fall to uptrend line #2. After that it could drop to uptrend line #1 or below.

If you are not worried about how rosy this idea is sounding and you are curious about going long, let me tell you what I see in the chart. At the moment, I would say FTR             is coming back to a level that investors feel comfortable with. What is that level? Your guess is as good as mine. My guess though is uptrend line #3. From the time the downtrend line broke in early 2014 to now, uptrend #3 is the place where the stock has found support. Maybe it will happen again.

There are a couple horizontal lines of potential support I see on the chart as well. These could also be places where the stock price decides to turn around and continue its ascent. Those levels are $7.10 and $6.80 "ish". I would not buy stock in anticipation of these levels working. I would wait and watch to see what the action looks like at these levels. Why? Well if you buy tomorrow anticipating a turn around at $7.10, and it doesn't happen, you will lose money until it does turn around. If FTR             continues to fall to uptrend line #3 you could lose about 9% of your investment. The point is to buy as close to the support level as possible IF you see signs of the turn around.

If you are buying for a long term investment and the dividend FTR             offers, you might feel like there is no reason to wait. And you may be right to a point. But I will offer this. Assume a $1000 investment. Every $0.25 less you pay for the stock equals about 5 additional shares. Those 5 additional shares (per $1000 invested) means 5 less ten and a half cent dividends every quarter from now until you sell the stock . What if this is the beginning of a 7 year uptrend in FTR? Those lost dividends would add up over time! Not to mention the compounding you would lose out on as well.
Really nice analysis, my advice is to look more at market sentiment as this could turn into a long term retrenchment back to the 7 year trend, but that is highly unlikely as there are many dividends to entice investors.
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TheTrendLineInvestor kourosh.alborz
Thanks for the compliment.
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Very nice chart and helpful. I appreciate your hard work. I am interested in their dividend. I invest for dividends short term.
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@henrh, I noticed your comment and wanted to make sure you know my feelings at the moment on FTR. A few weeks after I wrote this, FTR took a turn down. It has continued down ever since. The break of trendline #3 was definitely our sign to get out. The dividend will not make up for the decrease in the stock price. Do not buy until the downtrend is broken. And even then, use a stop that protects most of your investment.
Let's just say that you really want to buy this stock and you feel you have to buy now. If it were me, I would buy a little at a time until the stock proves it wants to move forward. If the stock price falls below $3 you should be out. If the current weekly downtrend breaks, maybe it's going higher. Have a great weekend.
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