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Wireless Telecom first to make relative highs

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In last night's Index Traders wrap, we discussed how the NASDAQ- 100 Index (NDX.X) 1,057.87 (unchanged) has been holding near its recent highs, but that index traders there wanted to try and identify a "leadership" technology sector to watch for leadership that might hint of a further advance for the NASDAQ-100.

A quick screen of the sectors shows the Wireless Telecom Sector (YLS.X) 53.04 +1.3% as a sector that had just tested its falling 200-day SMA and might be able to make a push higher on a break above its recent relative highs. In the past hour, we've seen that break higher and there looks to be some upside still to be had.

Wireless Telecom Sector Index - $1 box

Today's trade at 53.00 has the YLS.X giving a third consecutive buy signal off the bottom and looks to have some further upside into May consolidation just below the $61.00 level. I personally don't like the risk reward in a trader in the YLS.X as risk to a sell signal at $45 isn't good enough for me if targeting $61.

However, that doesn't mean I can't trade a stock in the group that could benefit from the sector bullishness that offers a better risk/reward entry point.

Tellabs Chart - $0.25 and $0.50 box

We talked briefly about TLAB in this morning's market monitor as a potential bullish candidate as this stock is a component of the YLS.X. While the YLS.X breaks to new relative highs, TLAB is just starting to rebound a bit after pulling back to retest its first buy signal off the bottom, which took place at $7.00. While I'm very cautious for tech, I like the risk/reward in that TLAB offers compared to the YLS.X sector itself. A partial position in the TLAB January $7.50 calls is about $1.15 at current levels. That's the same risk in the stock, but doesn't tie up, nor risk the same amount of capital. If you would normally trade 1,000 shares of TLAB stock as a FULL position, then that would be 10 contracts. Therefore, a 1/2 position would be equal to 5 contracts, where the trader is risking $1.15 per contract, which would be equivalent to a stock trader risking a bullish trade with a stop at $6.50.

Jeff Bailey

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