What’s the best part about bear markets? Profiting from bear market rallies — to short! And in our estimation, one large-cap stock that fits the bill is networking giant Cisco Systems, Inc. (CSCO).
If you can get past Cisco’s recent and overall decent earnings trifecta and turn a blind eye to some analysts’ applause and investors’ “best thing since sliced bread” reaction; Cisco stock is offering a terrific value proposition of another kind — for bearish shorts.
To be sure, Cisco stock as a shorting opportunity is a contrarian play based on items like the company’s earnings beat, dividend raise and $15 billion stock buyback hike announcement.
But not all of Wall Street was enamored with Cisco stock following its report.
Further, if one looks at what’s being proffered on the Cisco stock chart for a less biased health check, conditions are elevated in a good sort of way for bearish opportunities.
Cisco Stock Weekly Chart
Here’s my problem with Cisco stock … or more aptly, here’s why I see CSCO as an opportunistic short within a bear market.
A picture can speak a thousand words, but sometimes all it takes is a few key descriptive supports to separate what’s important from what’s not. And that’s how I’d sum up Cisco stock’s bearish price chart right now.
Items like a broken weekly uptrend, retracement into channel and Fibonacci resistance, and lower lows and lower highs make better, unbiased sense of what’s going on in Cisco stock. And that sense points to a likely top and price pressure for Cisco stock going forward.
Regarding an initial downside target, I’d expect Cisco stock’s daily earnings gap near $23 will get filled.
Cisco Stock Long Put Strategy
For traders agreeable with Cisco stock’s presented bearish situation, premiums are cheap right now following Cisco’s earnings report, providing an opportunity to purchase an outright put with reduced risk.
Checking the Cisco stock option’s board, the May $25 put for 90 cents or less is attractive.
Given our initial price target of $23 in Cisco stock, the put would more than double in price intrinsically. And given there’s still nearly 90 calendar days until expiration. Similar to reduced volatility risk, time decay isn’t a serious threat right now either.
Having said that, if Cisco stock were to rally $1 to $27.32 and sit comfortably above Monday’s high of $26.91, I would look to use a stop loss on the bearish bet to keep losses contained to around 50%.
At that point, Cisco stock would also be back above the 200-day simple moving average and channel resistance, and providing sufficient evidence of bullish strength within a weakened bearish trend as to warrant an exit.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
