By: Larry MacDonald

Nortel Networks doomed? Why then the 35% rally on Nov. 13? Maybe some people think Nortel has a future – or at least that its shares will be more readily embraced when the global flight from risky assets attenuates?

The market rallied just over 5% that day, so the tech “dinosaur” beat the market close to seven times. Some of Nortel’s leap might have been due to a contract win with Verizon Business announced Nov. 13, but the dramatic uptick likely was mostly due to market conditions and should provide some idea of the potential for gains once markets rally off their bottoms. If we get just a modest 15% rebound across the board within the next few months, Nortel could be 30% to 100% higher.

The most oversold stocks tend to lead the climb off the bottom, according to technical analysts. Nortel certainly fits the description of heavily oversold. So maybe there could be, despite the thick-as-molasses pessimism, some dramatic upside for Nortel shares over the next few months?

Nortel may or may not go to zero eventually, as some prophesize. In the meantime, though, traders, with nerves of steel might be well rewarded. Once again a caveat: as you may recall from this post, I am a long-suffering holder of Nortel shares.