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Even with a bearish article in the Wall Street Journal, the Telecommunications Index is one of today's best performing sectors, up 1.24%. The article sites that the telecommunications debacle has wiped out almost $2 trillion in stock wealth, and billions more could be lost due to telecoms defaulting on debt. Telecommunications could also have an affect on GDP data released this Friday. Last year telecom made up a mere 1.2% of gross domestic product, but has been responsible for 25% of the drop in GDP data this year.

Telecommunications Index Daily Chart

Despite all that, the Telecommunications Index (XTC.X) had been in a month-long up trend. On July 2nd, the index met resistance at 920, the 61.8% retracement level, but was able to keep the up trend alive. The situation looked even better when XTC cleared the 50-day moving average, but overhead was the 50% retracement level. The index battled for two days to clear that level, but yesterday's drop proved to be more than the up trend could handle. Now trying to recoup some of yesterday's losses, XTC should once again meet resistance at 920. XTC could very well be setting up a head and shoulders top, with the neckline at 895. A MACD that looks poised to roll over also implies that any rally attempts could just be forming the right shoulder.

WorldCom Daily Chart

One telecom component that might help to form the right shoulder is WorldCom (NASD:WCOM). The 2001 trend for WorldCom has been down. The best this stock has been able to do is consolidate between $15 and $13.50, but now support at $13.50 looks in Jeopardy. WorldCom releases earnings on July 26th, which should determine if support holds or not.

Jeffrey Canavan
Assistant Analyst

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