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The Fed just cut interest rates by 50-basis points! At 01:15 EST it was announced that the Fed has cut interest rates by 50-basis points! This has turned equities markedly higher!

I "know", therefore I will not be discouraged

Some subscriber might be a little frustrated today with the activity we're seeing in the telecom sector. Last Wednesday in the 03:30 EST Update, I talked about "tax-loss selling" and how it might provide a bounce for some NASDAQ stocks. In that update I highlighted three stocks from the telecom sector. Two of them were telecom equipment stocks by the name of Foundry Networks (FDRY) and Redback Networks (RBAK). I also mentioned a telecom service provider by the name of WorldCom (WCOM). It doesn't take a Harvard MBA to figure out that WCOM is bouncing and the other two are heading in the opposite direction. This type of activity always makes me wonder why this may be happening. Yesterday, I talked about the possible scenario that may play itself out in the long run and may pay HUGE rewards down the road. The major idea yesterday was that some telecom service providers like WorldCom (WCOM), AT&T (T) and SBC Communications (SBC) might benefit in the near-term of lower telecom equipment prices. This is a longer-term scenario that short-term traders may be able to benefit from in the current months.

I "know" that WCOM, T and SBC (there are other service provider too, but we're trying to stay within our original observation) will eventually experience some profit taking. We aren't the only ones who probably outlined this "group" and developed a trading plan last week (if institutions did, all the better). therefore, I will not be discouraged and start chasing these stocks in an unorganized rush of enthusiasm (institutions don't chase either). If I "wished" I had bought some of these stocks (T, SBC, WCOM) on Wednesday, Friday or yesterday morning, I can look for pullbacks in these stocks and trade them from there (if you were an analyst and an institutional client didn't follow your advice to buy on Friday, do you think that institution might listen the next time on a pullback?). At the same time, if I traded bullishly in shares of FDRY and RBAK or other stocks in the telecom equipment sector, I know too well that this group is still under selling pressure and should be taking notes. Eventually, the telecom service providers will start spending money at an increasing rate and new technologies will warrant such activity, therefore I will not be discouraged about this group weeks/months/years from now. What I MUST take from this current trend is "knowing" what I should be focusing on in the telecom sector and begin identifying which of the stocks in the telecom SERVICE area look technically strongest. I can do this my looking at different timeframes (weekly, daily, hourly) and use my trend lines and moving averages to begin whittling down a select group I want to trade bullishly in. At different times I KNOW that T might be near a good level of support when SBC is a bit overextended and select the proper stock to buy at the appropriate time.

Jeff Bailey
Staff Analyst

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