Don't Bet on Terrible Telco Performance

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The telco complex seems to recognize that this downturn is not going away. JDS Uniphase (JDSU - Cramer's Take - Stockpickr) fights and withers. Lucent (LU - Cramer's Take - Stockpickr) bounces up and then comes down. Cisco (CSCO - Cramer's Take - Stockpickr) ramps up on short-covering, and then when the shorts are done covering, it gives up the ghost.

So should you short them? Nah, because they are, as I keep stressing, roller coasters that make you sick to your stomach but ultimately don't hurt you. They stop where you got on. My suggestion, if you are long these stocks, is to use any of the strength you get to lighten up.

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When JDS Uniphase rallied on the "congratulations, gentlemen" call, that was a terrific opportunity to sell. Analysts, by the way, will never get you out of these stocks, so you have to think for yourself. Same thing when Cisco seemed to be impervious to the new negative guidance. Now look at it; stock's right where it sold off to on Davos day.

They won't roll over, though, because if the economy does catch fire, they will be able to mask the decline that they are seeing now. If the economy doesn't catch fire, they will go much lower. But, remember, my thesis: The Fed cuts big and the economy reignites, perhaps even in time to cordon the decline.

That's why I like the financials. The medicine that the Fed has to provide to get the capital expenditure orders flowing first benefits the financials, because they immediately make money when the short rates go down. The turn for the JDS Uniphases and the PMC-Sierras (PMCS - Cramer's Take - Stockpickr) is just too iffy to bank on. Too iffy to short, too. So, in other words, stay away.