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Networking leads declines

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The AMEX Networking Index (NWX.X) leads sector decliners this morning with a 5% decline at $293 and this group looks more defensive/bearish by the day. Last week investors were greeted with some bearish news in the telecom sector as Global Crossing (GX) and McLeodUSA (MCLD) both filed for bankruptcy. Traders also saw telecom giant WorldCom (WCOM) trade an low levels not seen since 1995.

With obvious slowing at the telecom services end, many are now left to wonder where the demand for telecom equipment and many networking components will be found.

Networking Index Chart - $5 box

The $5 box shows two recent sell signals being given in the NWX.X and this group looks like it is under liquidation. The trend off the bottom is simply a 45-degree trend and a break of the $290 level and trading at $285 would most likely have this index seeking out the lower end of our bearish channel and back into November (red b) consolidation. A decline to the $275 level would be a 6% decline from current level. Traders can use this information to help assess potential downside in stocks they're currently trading with a "networking" theme.

Jeff Bailey
Senior Market Technician
Option Investor

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