Telstra job cuts: Blue-chip bargain or sign of trouble?

Telstra has made headlines by announcing significant job cuts of up to 2800 positions as part of cost-saving measures.

This decision resulted in one of the largest weekly declines in its share price since 2020 and raised questions about whether this presents an opportunity to acquire a blue-chip stock at a discount or if it signals underlying issues within one of Australia's major market players.

Admittedly, layoffs are rarely a positive sign for a company, and Telstra's move is estimated to cost between $200 million and $250 million.

However, there's a silver lining: by making these changes, the company anticipates saving $350 million by the end of the 2025 financial year, resulting in a net positive scenario of $100 million.

If these cost savings are effectively reinvested to foster growth and innovation, this will potentially boost the share price. If this occurs, then Telstra might become an appealing investment option.

One thing of note is that Telstra's core mobile business continues to perform strongly, with the company projecting a pre-tax, pre-interest profit of $8.4-8.7 billion for the 2025 financial year.

Turning to the share price, Telstra is currently trading around $3.40. What's noteworthy is its historical resilience at these price levels: despite its 27-year tenure on the ASX, it has only dipped below $3.40 on three occasions, each time rebounding strongly, with gains of at least 17%, and even surpassing 90% in 2015.

So, if Telstra has played its cards right, albeit at the cost of an unpopular decision, then perhaps we're witnessing a blue-chip stock at a discount right now.

However, I would exercise caution and wait for signs of upward price momentum to confirm a new uptrend before you consider it a buying opportunity.

What are the best and worst-performing sectors this week?

The best-performing sectors include Information Technology, up more than 4%, followed by Utilities, up more than 2% and Industrials, up just under 2%. The worst-performing sectors include Communication Services, down more than 2%, followed by Consumer discretionary, down just under 2% and Real Estate, down just under 1%.

The best-performing stocks in the ASX top 100 include Technology One, up more than 12% followed by Xero up more than 11% and IDP Education, up more than 6%. The worst-performing stocks include James Hardie, down 12%, followed by Liontown resources, down more than 6% and Nine Entertainment, down more than 5%.

What's next for the Australian stock market?

As the All-Ordinaries index has failed to achieve a new all-time high this week, it raises the question: Have buyers exhausted their immediate efforts and, in doing so, paved the way for sellers to take charge, or are they just taking a breather?

As of writing, the All-Ordinaries index has seen a slight dip of less than half a per cent this week, and prices have remained within the range set last Thursday. This indicates that the market is in a phase of at least short-term accumulation.

Such periods typically precede significant price movements in either direction, adding intrigue to the market's next move.

So, with a strong directional move either up or down on the horizon, there's a genuine possibility that our market may trend downwards.

This is supported by the historical seasonal trend of market declines in June, and the market's inability to surpass the previous all-time high adds fuel to this. That said, given the market's resilience this year, a significant price fall on the All-Ordinaries index in June seems less likely.

A more probable scenario is for the market to reach its major yearly low between September and November.

Therefore, there's still considerable room for market growth before any serious decline.

Nonetheless, if June follows its historical downturn, I'll closely monitor the 7800 level, which has been a strong buyer support level since February. If prices breach 7800, the potential support around 7500 becomes pivotal.

As we are presented with two opposing potential scenarios on our market and a short window regarding market turning points, I cannot stress enough the importance of having an exit strategy in place for the stocks you are trading.

Waiting for the market to plummet before considering selling will be too late, potentially undoing all of the nice gains the market has provided this year so far. For now, it is time to wait and see what the next move holds.

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