Curb Your Enthusiasm Into Cisco Earnings (CSCO)

By -
Cisco Systems Inc. (CSCO) has dropped off the radar of many tech sector enthusiasts in recent years, with the company’s old-school networking technology translating into slow growth and even slower price movement. However, the stock has posted sizable gains since hitting a 21-month low in the first quarter of 2016 and could add to its winning streak following the Feb. 15 earnings report.
That confessional will mark the traditional end to a fourth quarter earnings season that’s posted many upside surprises. However, substantial gains after the election discounted the majority of positive results, generating a low volume first quarter tape while triggering divergences across asset classes, due to confusion about economic prospects under the Trump administration. This lethargy could undermine CSCO price action following the results.

CSCO Long-Term Chart (1993–2017)
CSCO
The stock split eight times during a rapid 1990s ascent underpinned by membership in the legendary Four Horsemen, the nickname for a quartet of tech stocks that financial advisors of the era recommended to clients as buy and hold for life candidates. Many investors took the advice to heart and paid a steep price after the multiyear uptrend topped out at an all-time high at $82 in March 2000.
It plunged during the Dot.com bear market, losing 90% of its value into the October 2002 low at $8.12. It’s instructive to note the stock has now traded within the boundaries of the 2000 high and 2002 low for the last 15 years. The deep low gave way to a 2003 recovery wave that stalled in the upper 20s in 2004. That level marked resistance for the next three years, despite a powerful uptrend across other tech venues.
It rallied above range resistance in 2007 but the upside stalled in the lower-30s, triggering a major reversal, followed by a failed breakout at the start of 2008. Selling pressure escalated during the economic collapse, dumping the stock to a 6-year low at $13.61 in March 2009, while a recovery wave into 2010 ran out of gas well below the 2007 high. That failure presaged a long period of underperformance while broad benchmarks were engaged in historic recoveries.
An 8-year low in the lower teens finally ended the multiyear downtrend in 2011, giving way to a choppy uptrend that’s posted volatile two-sided action into the first quarter of 2017. The stock has now reached within three points of the 2007 high, which stands as a major barrier to additional price appreciation. Also, a breakout above that level will face equally strong resistance near $37, at the .386 Fibonacci retracement of the 2000 to 2002 bear market.

CSCO Short-Term Chart (2014 – 2017)
csco
The rally stalled at $30.31 in March 2015, giving way to a sizable correction that posted lower lows into February 2016. Aggressive buyers then emerged, completing a 100% round trip into the October 2015 swing high in June. The stock finally reached 2015 resistance one month later, yielding a breakout that stalled in September just below $32. Price action since that time has carved an expanding wedge pattern that signals major conflict between bulls and bears.
On Balance Volume (OBV) topped out at the end of 2014, well ahead of price, and entered a distribution wave that came to an end in the first quarter of 2016. Subsequent accumulation has failed to match prior selling pressure, carving a lower high when the price hit a higher high last summer. This signals a bearish divergence (red line) that exposes hidden weakness, adding downside risk if the company misses earnings estimates or lowers guidance.

The Bottom Line

Cisco Systems hit a 9-year high in 2016 but still hasn’t mounted significant resistance in the mid-30s. Bearish volume divergences ahead of the company’s Feb. 15 earnings increases risk that mixed or bearish metrics will trigger a large-scale decline.


Source: www.investopedia.com

Comments

Post a Comment

Popular posts from this blog

China's forex reserves declined during December

By -
Image
© Reuters. Now at $3 trillion level. Stock Trading   - Forex reserves in China shrank last month, but ended the year above U.S. $3 trillion, according to figures released by the People's Bank of China this weekend. The report comes among rising debate on whether the Chinese government will strategically defend the yuan or prevent depletion of its reserves. The People’s Bank of China figures released on Saturday said that foreign exchange reserves fell by U.S. $41 billion in December to U.S. $3.01 trillion. Forex reserves dropped by U.S. $319.8 billion for Beijing last year. The government said later the central bank’s efforts to stabilize the yuan were the primary reason for the decline in its reserves during 2016. “In terms of the situation in December, the central bank’s supply of foreign exchange to adjust market demand and supply, the depreciation of non-U.S. dollar currencies against the greenback, and other factors, led to the decline of foreign exchange reserve...
Keep reading

Healthier Credit Scores Point to Bullish Economy

By -
Image
Investors have more than recovered their losses following the Great Recession, but the consumer recovery has been somewhat slower. After reaching 10% in late 2009, the unemployment rate only recently returned to its pre-crisis levels last year. The good news is that the economy appears to have stabilized and recent credit rating data shows that consumer credit is healthier than ever in nearly every city measured. Here's a look at Experian’s 2016 State of Credit report and what the data tells us about the economic recovery and outlook moving further into the new year. (For related reading, see:  Stocks Begin the Year on a High Note. ) Improving Credit Scores The most surprising takeaway from Experian’s 2016 State of Credit report is the broad increase in credit scores across the nation. Glendive, Mont., was the only city reporting a decline in credit scores while Victoria and Odessa-Midland in Texas were the only cities with scores that re...
Keep reading

A Key Trump-Rally Indicator Starts to Crack

By -
Image
The so-called Trump reflation trade - which anticipates increased inflation and rising interest rates - is showing signs of breaking down as many bond investors anticipate that actual inflation, rates, and economic growth won't rise nearly as fast under Trump as originally expected, according to How Investors Can Prepare for a Bond Bear Market .) Bloomberg. One key indicator suggesting this less than optimistic outlook is on the 10-year Treasury note, which rallied earlier this week in its longest bull streak since last summer. This price action signals to some investors that the long-anticipated end to the three-decade rally in bond markets may not have yet turned a corner. (See also: 10-Year Note's Big Advance "The wager against Treasuries, among the most resilient trades in the wake of Donald Trump’s election, is showing signs of crumbling," according to Bloomberg in a February 8 article. "The benchmark 10-year note gained for...
Keep reading