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Telecom stocks trade like "heat seeking" missile!

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In Tuesday's 03:00 EST Update on OptionInvestor.com, we felt the North American Telecom Index (XTC.X) had the potential to see further selling to the $517-$520 level. That group action hinted that there were some telecom stocks about to be flushed. One also has to wonder just where some of the telecom equipment stocks are going to find any growth prospects in the near-term as telecom service providers may have to tighten their purse strings further in order to help boost bottom line earnings.

North American Telecom Index Chart - Daily Interval

There are few buyers in the telecom stocks today and plenty of sellers. It's been that way for quite some time. Bears will target the $517-$520 level near term and be willing to snug down some stops or take some profits near that level and pay themselves for their hard work. MACD is not anywhere close to levels seen at the prior "bottom" near $600 and has a bull potentially seeing the XTC.X seek out the 435 level.

I have thought in the past and still think that this negative action will eventually have many CEO's at the telecom service providers getting more aggressive with some spending budget cuts. As they watch their stock prices get pummeled, pretty soon it becomes a survivors strategy that they need to cut costs further to get some earnings going to the bottom line and get investors interested in their stocks again.

That could then create the "domino chain" that has some telecom equipments stocks seeing further pain. Telecom-equipment companies would dread further telecom spending cuts.

Tonight, Juniper Networks (NASDAQ:JNPR) $10.50 -3.5% announces earnings. The conference call will most likely be listened to closely as they may tell the market their outlook on what they see taking place in the telecom-equipment and fiber optic areas.

It's rather obvious that the telecom stocks are very weak. As such a bear (even in other sectors of technology) wants to at least monitor this group at potential support levels. If they can firm, then that could see other technology sectors firm too. So far, it isn't happening and this has other technology sectors seeing selling again today.

Jeff Bailey
Senior Market Technician
Option Investor

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