Cisco Systems Reports Earnings With Positive Charts But With Limited Upside

| About: Cisco Systems, (CSCO)
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Summary

Cisco set its multiyear high of $46.37 on May 10, but this is well below its March 2000 bubble peak of $82.00.

Cisco has been above a ‘golden cross’ since Oct. 16 when the stock closed at $33.54.

The stock last tested its technical ‘reversion to the mean’ during the week of Feb. 12 when the average was $23.61.

Cisco’s weekly chart is positive but overbought, but the upside should be limited to my risky level for May at $48.05.

Cisco Systems, Inc. (NASDAQ:CSCO) closed Tuesday at $45.48, up 18.7% year to date and up by a bull market measure of 21.6% from its 2018 low of $37.35 set on Feb. 6. The stock set its 2018 high of $46.37 set on May 10.

Cisco was at $82.00 back in March 2000 and traded as low as $8.12 in October 2002. When the stock was below $10 a share, I recommended the stock as a long-term buy on the Fox News show, ‘Forbes On Fox’. It was one of my favorites back then, but not so much now!

Analysts expect Cisco Systems to earn 65 to 66 cents a share when they report after the close on Wednesday, May 16. The computer networking giant and component of the Dow Jones Industrial Average needs to increase earnings from non-hardware efforts in software development and computing services. With the weekly chart overbought, Cisco needs to report a blow-out beat on revenues.

The daily chart for Cisco Systems

Daily Chart For Cisco Systems Courtesy of MetaStock Xenith

The daily chart for Cisco shows that the stock has been above a ‘golden cross’ since October 16 when the stock closed at $33.54. A ‘golden cross’ occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. Buying the stock at $33.54 shows how the daily chart helped investors make money.

The horizontal lines are my quarterly and semiannual value levels of $41.18 and $38.48, respectively. My monthly risky level of $48.05 is above the top of the chart.

The weekly chart for Cisco Systems

Weekly Chart For Cisco Systems Courtesy of MetaStock Xenith

The weekly chart for Cisco is positive but overbought with the stock above its five-week modified moving average of $44.39. The stock is well above its 200-week simple moving average which is the ‘reversion to the mean’ now at $30.73. The ‘reversion to the mean’ was last tested during the week of Feb. 12 when the average was $23.61. This clearly shows how the weekly chart helps long-term investors make money.

Why I use the 200-week simple moving average as the ‘reversion to the mean’.

As a pure chartist I believe that chart patterns are the summation of all possible bullish and bearish events for any stock or ticker. The 200-week simple moving average tracks the price action in a long enough time horizon to consider this metric as the technical ‘reversion to the mean’.

The 12x3x3 weekly slow Stochastic reading is projected to end this week at 80.74, up from 77.09 which takes this measure above the overbought threshold of 80.00 on a scale of 00.00 to 100.00. This measure was an ‘inflating parabolic bubble’ as 2018 began and tracked the stock to its March 13 high of $46.16. The popping of this bubble was confirmed as March came to an end. The May 10 high of $46.37 can thus be considered a double-top.

Given these charts and analysis, my trading strategy is to buy weakness to my quarterly and semiannual value levels of $41.18 and $38.48, respectively, and to reduce holdings on strength to my monthly risky level of $48.05.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.