Rhythms NetConnections, and Englewood, CO based provider of high- speed Internet service, is the latest telecom to file for chapter 11 bankruptcy protection. The company was spending an estimated $1.9 million a day more than it was taking in. You don't have to be a CNBC analyst to figure those financials out.
Telcoms have racked up over $650 billion in debt, and losses for investors are expected to approach $150 billion, making it one of the biggest financial debacles since the S&L calamity.
North American Telecom Index Daily Chart
The Telecom Index (XTC.X) has rallied 10 percent since setting a new low in June, but that rally looks to be stalling. XTC has met resistance at 941, the 50 percent retracement level, and is starting to roll over. The index has lost support at 920, the 50- dma and 61.8 retracement level, and the MACD that is rolling over suggesting at least a test of 900.
Looking especially vulnerable is the S&P Telecom Services Sector. The bullish percent for this sector is sitting in overbought territory at 74, and the highest this sector has climbed in the past two years is 76. When it does turn down, these will be the stocks responsible.
VZ Verizon Communications
SBC Communications Daily Chart
SBC Communications (NYSE:SBC) is trying to break out of a base, but $45 has stiff resistance. The old up trend that was broken in March has done its part to now act as resistance. Three days ago SBC once again failed at $45, and could be on its way down to test the 50-dma, or the previous low at $40.50. The next time this stock wants to test resistance at $45, the 200-dma will have dropped far enough to add more downward pressure.
Sprint PCS Group Daily Chart
Sprint PCS (NYSE:PCS) has also been trying to form a base in the form of an ascending triangle. $27 has been the resistance level that Sprint has been unable to crack in four tries. With the stock now heading lower, its up to the 50 and 200-dmas to support any declines. With the MACD getting ready to roll, PCS could be setting up for another test of the shallow up trend.