Last week I mentioned that the Wireless Telecom Sector (YLS.X) was breaking to a new 52-week low which had me looking at a bearish trade in component Verizon (NYSE:VZ) $40.91 -2.94% just above the $43 level. Today, bears in Verizon (VZ) like what they see from the sector and we can begin to visualize some levels to be looking to lock in gains on any further weakness.
Some subscribers have indeed noted that Verizon (VZ) exhibits relative strength versus the YLS.X and this is perhaps "understandable" as VZ is not a manufacturer of wireless equipment like some of the other components, but more of a wireless services provider. This fits very much in line with comments made back to October of 2000 in my observation that equipment stocks would suffer more than the service stocks.
However, its just a fact that with many of the "equipment" stocks now trading below $10, risk management makes it a little more difficult to be aggressively shorting some of the equipment components, thus a bearish trader is left to pick on some stocks in this group that still have some potential downside on the technicals, but where entry points recently profiled, gave the bearish trader some more manageable risk/reward profiles.
Wireless Telecom Sector Chart - Daily Interval
While I was bearish Verizon (NYSE:VZ) while the YLS.X was above the 52.83 level, one test for that trade was to get the sector breaking the 52.83 level, which might open the door to a decline to 41. The thinking for VZ was the stock was technically weak, but if the sector was going to drop to 41, then VZ might just help.
Today's downgrade of select wireless stocks (AWE, NXTP, PCS, NXTL) are helping put pressure on the sector.
Verizon Communications Chart - Daily Interval
Lots of subscribers are liking the bearish action in Verizon (VZ) and it helps to update a plan as things look to be unfolding as planned. Since we used the YLS.X observation of weakness to identify a bearish trade in VZ, we want to stick with what brought bears to the dance.
Near-term, I correlate a decline to 41.00 or near there as an "excuse" to lock in 1/2 position gains in Verizon (VZ). If VZ correlates to the bottom of its lower regression channel or 61.6% retracement at $40.01, then that would be the level to lock in gain.
By locking in 1/2 position gains, the trader is reducing risk from his/her account, but still allowing for further downside in VZ should bulls really pull the plug and capitulate based on weakness in the wireless and telecom sectors.
While this commentary is VZ oriented, I'm hoping that every subscriber can perhaps take these techniques to stocks/sectors they're currently trading and identify potential levels to look for near-term support and trade/account management.
Earlier today in the 11:00 Update, we noted that the NYSE Bullish % ($BPNYA) from www.stockcharts.com had reversed into a column of O's at 57.8% and that all of our sectors were in a more defensive posture. At the other end of the spectrum, the NASDAQ-100 Bullish % ($BPNDX) is "oversold" at 27%. This should have bears beginning to start focusing more on 1,2 and 3-lettered stocks in the NYSE that are trading below trend on their point and figure charts, where stocks there look to have further technical downside.
Currently, all the market averages and all but two of the sectors we follow are showing losses. Only the Gold/Silver Index (XAU.X) 83.91 +0.98% and the Dow Jones U.S. Home Construction Index (DJUSHB) 366 +2.38% are showing gains.
The deeper cyclicals as depicted by the CYC.X 562 -1.05%, Transports (TRAN) 2,666 -0.5% and Forest & Paper Products (FPP.X) 355.93 -0.35% are trading relatively tough and have some bears understanding that the more economically sensitive sectors at the industrials level are still acting rather well versus their counterparts in the technology sector that may still be further away from the proverbial "money pot" as it relates to any economic growth.