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Networking Index getting a boost

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Networking stocks as depicted by the AMEX Networking Index (NWX.X) are leading sector gainers today and this may be an area for short-term bullish traders to be focusing. I like the now rounding MACD indicator on the daily interval and some now lacking tax-loss selling out of the way.

Networking Index Chart - Daily Interval

The Networking Index (NWX.X) has clawed back to its session highs and looking like it may have some near-term inside. The catalyst for the upside move may well be due to a "lack of selling." This group was hammered in 2001 as the index plummeted nearly 55% from its December 29, 2000 close.

Trader's that have their eye on networking giant Cisco Systems (NASDAQ:CSCO) should be using the group strength to perhaps line up a trade in shares of Cisco. On Friday I mentioned shares of Cisco (CSCO) as a potential bullish trader for an aggressive bull near current levels of $18.70. A move above the $19.20 level for Cisco in unison with the Networking Index trading higher and a MACD crossover should bring some momentum traders into the group.

It was my observation last week that the recent pullback in Cisco from the $22 level to $18.50 level may well have been due to some end of year tax-loss selling.

Cisco's relative strength vs. the Networking Index (NWX.X) is currently negative, so bullish traders should only be trading with some 1/2 positions. When/if Cisco's RS turns back into a column of X can traders then begin getting more aggressive with the stock as the trader works in their favor.

Jeff Bailey
Senior Market Technician
Option Investor

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