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Still seeing some "pop" on short-covering and speculation

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While the major indexes show modest gains ahead of the weekend with the Dow Industrials (INDU) up 7 points, S&P 500 up 1 point, NASDAQ Composite up 3 points at Russell 2000 gaining 2, all of these amount to less than 1% gain on an individual basis.

However, the Networking Index (NWX.X) 154 +4.79% has taken over today's sector winner as Lucent (NYSE:LU) $1.55 +13% breaks to a two month high and looks to have some upside to the $2.00 level on rumor started by co-host of CNBC's Kudlow and Cramer has James Cramer starting rumor of a General Dynamics (NYSE:GD) $83.11 -0.55% and Lucent pairing.

Also bolstering gains in the NWX.X is component Sycamore Networks (NASDAQ:SCMR) $3.15 +7.87%. While I find no news on the wires to explain today's "pop," my thoughts here are that the stock finds a bullish target just above at its 200-day SMA of $3.21 and with the NASDAQ-100 Index (NDX.X) 1,121 +0.29% looking to challenge its 200-day, traders are looking for these types of technicals to play some short-term moves to upside targets.

One stock that aggressive bulls might find compelling technical in are shares of Alcatel (NYSE:ALA) $5.80 +7.01% as the stock moves up against horizontal resistance of $6.00. Technicals here look very similar to that found in the NASDAQ-100 Index a couple of days ago with horizontal resistance perhaps finding some bears nipping away as a low risk short with a stop just above $6.00. However, with the 200-day SMA trending lower near $8.00, the stock could move on the momentum of the NWX itself as trader begin targeting a potential test of the 200-day SMA.

Alcatel (ALA) - Daily Interval

With some momentum in the Networking Index (NWX.X) and according to Dorsey/Wright and Associates, a Telephone sector bullish % (BPTELE) of "bull confirmed" at 36%, some telecom equipment stocks may have further benefit from short covering and some mutual fund managers looking for some "tech-like" exposure. I've been seeing some stocks with similar technicals make some quick moves higher on breaks of bases like that which forms in ALA. With the NASDAQ-100 Bullish % ($BPINDU) up at 75% and more overbought, the telephone sector bullish % while "bull confirmed" is rather low at 36%. The current bullish vertical count of ALA's p/f chart is $9.75 and I like a bullish trade in a break above $6.02, stop $5.28 with a target of $8.00 as a way for an aggressive bull to play some upside technical action an a break higher.

Jeff Bailey

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