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Has he lost his mind\?

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That's the question some subscribers had for me this morning after last night's market wrap when I wrote "Nortel looks a little toppy." Toppy? At $5.65 the stock is down about 93% from its July 2000 high of $89. How can the stock look toppy?

My Nortel (NYSE:NT) $5.34 -5.48% comments were slated toward the comparison of NT versus fellow telecom equipment maker Lucent (NYSE:LU) $5.09 -9.73% and that the continued trouble/slowing in the telecom services area may find further weakness in the telecom equipment areas. This "commentary" and type of thinking goes back to October 2000. One of these days I'll find some of the first commentary on this subject that reaches back to when a stock by the name of Copper Mountain Networks (NASDAQ:CMTN) $1.05 -4.54 was breaking bullish support trend and giving a triple- bottom sell signal up in the high $20's.

Some stocks called "CLECs" Common Local Exchange Carriers like ICG Communications (bankrupt now) and Convergent Communications (bankrupt now) were starting to have some trouble's as revenue growth was falling off, and earnings had yet to flow to the bottom line. My "problem" at the time for many telecom equipment stocks was "who is going to create the demand for networking equipment if some of these CLECs quit ordering equipment?"

Well, either I was a genius, or that type of simple logic really seems to have played out (I think the latter).

Are things better today? I don't think so. Maybe there are some new ICG Communications in the works. Maybe investors are willing to go back to the proverbial well for another drink of telecom sweetness, but not this horse. At least not right now.

While my comments were not meant to offend anyone that may be holding one of these "telecom equipment stocks" I do hope that equity bulls will avoid the group for some time. It may be a long time and a very bumpy trail before any of the Nortel's (NT) or Lucents (LU) see the trough.

Maybe all the bad news is out and the stocks are finding a bottom. Has Lucent (LU) found a bottom? Who knows, it matched it's 52-week low today.

Lucent Tech Chart - Daily Interval

Ugh! Tough to turn an account around if trying to pick bottoms in the telecom sector. Telecom service stocks are closer to the money, then comes equipment providers like Lucent (LU) and Nortel (NT). A little further still then finds some of the fiber optic providers that sell components to the Lucents and Nortels. Until some telecom service stocks see revenues growing and money hitting the bottom line, they'll keep cutting back their capital expenditure budgets.

Jeff Bailey
Senior Market Technician
Option Investor

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