Vodafone (NASDAQ: VOD) said recently its results were improving due to positive signs in the European economy but this is not being seen in the share’s price as it is struggling to hold the 32 level.
The European economy recently showed a rising PMI (Purchasing Manager Index) in core countries (Germany and France, the pillars of the Eurozone economy) and, what is even more important, the PMI’s are referring to the service sector.
While central Europe is a service-based region, then what is happening with the PMI Services is critical. Values over the 50 levels signal a sector that is expanding, while values below the 50 show contraction is on its way. The further above the 50 level, the stronger the sector. The more PMI dips below 50, the more recession steps in.
Well, in both Germany and France PMI Services is well above the 50 level now, with Spain following and only Italy and Greece lagging.
In comparison with other important economies in the world, like Australian and Canadian ones, the European PMI’s are looking even better and this makes the case for Vodafone’s European arm to post stronger gains on the short/medium term in comparison with businesses on other continents. Although, it’s worth considering that investment is ongoing. This January, the group announced a 1.25 billion investment in network upgrading in Egypt.
This brings service-based companies, like Vodafone, to have improved results as more revenues are coming due to higher consumer spending, as disposable income rises.
On the technical picture, the current price finds strong support at the 32 level as it is coming down from the 36 but tries to carve a bottom. It could be a double bottom if the market is reaching the 30 level, but as it is looking like now is nothing but an inversely head and shoulders pattern that is set to act as a reversal pattern.
The 30 spike lower most likely is going to be retested again, but it should be a nice place to buy call options around 31.5 as the current pace in Eurozone should continue due to the ECB QE(Quantitative Easing) program that just started this March.
The aim of the QE program is to stimulate growth, spending, and to create more money people need to spend. Services being the name of the game in Europe, then service-based companies should benefit more, so Vodafone is set to improve even more and show better and better results.
Therefore, I am favoring call options on VOD from around 31.50 level with one week or one-month expiration date.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
