Cisco's Trading History Offers Subtle Hints for Its Future

By Bryan McCormick

At the start of this earnings season I mentioned that many charts were trending without notable patterns. Although trends are great for longer-term investors, they are a bit harder on traders as there are no particular edges or hints as to the potential for excessively larger movements than normal, based on news.

Trends simply move in regular, smaller increments of price change, unless near the start or the end of a trend, which can have much wilder swings.
Cisco Systems (CSCO) has been one of the steady trenders of late. It was once a wildcat trading favorite, back in the heyday of tech stock speculation in the 1990s, but has since stabilized with the exception of last year's wild ride.

There is something subtle but potentially important on Cisco's chart that could be a signficant indicator of future trading, depending on CSCO's earnings report after the market closes Wednesday.

First, I wanted to look at a longer-term chart above, in this case a three-year weekly. I have drawn two lines here: a resistance line in red and a support line in green. The red line is at $25, which was a recent top for shares.

Although not perfect, it does appear that that line touches support and resistance levels stretching back over the three years we can see on the chart. The implication is that on better news, the $25 area could be an upside target, but may be one that wants to be breached if the news is sufficiently positive. A break above $25, rather than just reaching $25, would be bullish based on price history. It would clear a major resistance hurdle.

The support line in green is roughly at the $22.50 area. As I think will be clear, this has been a solid support zone for a couple of months.Interestingly, the space between support and resistance, if we look back to last year in September and October, is nearly price and time symmetrical with support and resistance then, though there were slightly more extreme swings in price at that time. If the price pattern bi-lateral symmetry persists, it suggests we could see a down move next in the stock.

Switching to a daily view, there is an important trend line that comes into play that happens to intersect nearly exactly with the $22.50 area as of now. That line is key as a break on bad news would break the recent uptrend. So $22.50, and more so a move below it, becomes very important as a risk factor to further downside on bad news.

(Chart data provided by Thomson Reuters)

Comments

[tunaman4u2]

Aside from technicals what do you value the stock at?

2009 Nov 04 05:36 PM