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Cisco hit by concerns that company may warn

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Technology stocks are under some pressure today after trader's turned bearish citing sources at Dow Jones that said slow sales in Europe may have the networking giant warning on upcoming quarterly earnings.

Last week I profiled shares of Cisco Systems (CSCO) as a potential short for bearish trader near the $17 level and thought bears might want to lock in gains near the $15.35 level this morning, which was just above retracement and upward trend on the bar chart. However, since that time, the "rumor" of Cisco potentially warning on earnings has the stock now testing upward trend.

Cisco Systems Chart - Daily Interval

I've said before that "I hate rumors." I've been on both side of the trade when a "rumor" hits. The reason I "hate" rumor is that is has the MARKET acting funny and stocks don't necessarily trade rational. As such, Cisco Systems (CSCO) was also profiled as a bearish trade on premierinvestor.net several days ago and traders were "triggered" on the break of $16.00 at yesterday's open of $15.74. While today's "rumor" that Cisco (CSCO) may warn on earnings has the stock lower, that's a bear's opportunity to lower a stop to profitability.

Tech psychology

Technology investors continue to "visit the couch" on a daily basis as good news on the earnings front from a sector seems to be quickly offset with bad news regarding earnings.

This morning's guidance lower by telecom-equipment provider Nortel (NYSE:NT) $3.70 +3.35% sees the stock higher, but down near 50% from levels found just three weeks ago. While many bulls continue to look for some type of "bottoming" in the networkers and telecom equipment sector, a bull's psychology has to be fragile.

Late Friday evening I was looking back at some commentary I wrote in a Market Wrap on premierinvestor.net regarding Nortel (NT) looking a little "toppy" at $5.65 and that got me thinking that fellow networker Juniper (JNPR) $11.22 -5.48% might be a stock that could revisit if not violate a 52-week low.

Juniper Networks Chart - Daily Interval

With business still rather slow at Lucent (NYSE:LU) $4.28 -3.82% and Nortel (NYSE:NT) $3.72 +3.91%, the fundamentalist side of me thinks that things aren't much better at Juniper (NASDAQ:JNPR). That's what I felt made a "lottery play" in the Juniper April or May $10 puts rather attractive for those willing to play a stock near a bottom that may follow some fellow networkers like LU and NT below recent 52-week lows.

Treasury watch

Treasury YIELDS have been rather mixed all morning and we are now looking at the 30-year and 10-year YIELDS trading fractionally lower. The 5-year YIELD is unchanged. This hints of a slightly "defensive" posture, that seemed to occur when the "Cisco rumor" came to the market.

Cyclical watch

The Morgan Stanley Cyclical Index (CYC.X) 574 +0.65% continues to find some bullishness from a recent test of upward trending 50- day moving average and upward trend. I'm monitoring the 580 level, which would be a test of the short-term downward trend. With MACD on the daily interval still headed lower, it is still to close to call as to the pending strength weakness of this group of stocks.

Transport watch

Another "key" sector that "economic bulls" may be monitoring that have recently been impacted negatively by higher fuel prices has the Dow Transportation Average (TRAN) 2,774 +0.74% and the Airlines Index (XAL.X) 100.29 +1.8% showing gains.

Just recently, premierinvestor.net profiled shares of Southwest Airlines (NYSE:LUV) $18.36 +0.54% as bullish, with a tight stop just under the $18.00 level.

Helping bolster the transports today is news that Secretary of State Colin Powell says he intends to meet with Palestinian leader Arafat, and that the U.S. is prepared to send observers to the region after a ceasefire. This has May Crude futures (cl02k) falling 2.1% to $25.95 a barrel.

Jeff Bailey
Senior Market Technician
Option Investor

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