Anatomy of Another Break-out: TNE

By Dr. Duru written for One-Twenty

May 22, 2007

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Before Monday's market open, I wrote about the potential for a technical break-out on Amazon (AMZN). As luck would have it, AMZN broke-out in stellar fashion for an amazing 8% one-day gain. As "non-luck" would have it, I was not prepared to put my money where my mouth was so quickly! (See disclaimer here.)

It then occured to me to check in on another stock that I knew was under-going consolidation: Tele Norte Leste Participacoes S.A. (TNE). Sure enough, the stock has recently broken out of a five-week long consolidation pattern in strong form. I have long been a fan of TNE. I accumulated the stock for much of 2006 and sold-out after a 3-day gapfest in April. So, I do not feel too bad for missing this next leg up. But I can say I was disappointed I did not get a new dip to jump into. I am still on the look-out for the next opportunity. The current excitement came after Brazil announced it would allow its telecommunications companies to exercise the urge to merge. Brazil is a vibrant, fast-growing country and telecommunications will be a key part of their growth engine along with the commodities that are even hotter right now. Above all, TNE still seems "cheap" to me with a forward and trailing P/E less than 10. (TNE also used to pay a heft dividend of around 6% or so).

Anyway, I thought this time around, I would go into more detail on some clues to look for in a potential break-out situation. Given the near non-stop pulse of this market, I strongly suspect there will continue to be plenty of these technical moves to go around.

As always, be careful out there!

TNE daily chart

DR. DURU®, 2007