Following Cisco Systems’ (NASDAQ:CSCO) mixed earnings and decisive crowd disappointment, the time and place to take action and buy CSCO stock is looking more opportunistic than not both off and on the price chart. Let me explain.
Last Thursday affirmed an important pivot for Cisco Systems. A fourth-quarter earnings report showed the tech giant has shifted from a decelerating hardware networking business model to one that’s capitalizing on growth markets from hybrid-cloud computing, to security and software subscription plans.
By the numbers, CSCO stock delivered a two-cent earnings beat on profits of 83 cents per share. Sales of $13.43 billion grew by 6% and narrowly topped forecasts of $13.4 billion. But looking forward, Cisco’s transition did find push-back from Wall Street.
Citing challenges in the company’s service-provider orders and weakness in China, Cisco offered subdued year-over-year sales guidance of 0%-2% growth. The company also announced modestly lower earnings of 80 cents to 82 cents versus consensus estimates of 83 cents per share of CSCO stock.
And for their part, investors did more than just listen to what Cisco’s CEO had to say.
The muted outlook caused an abrupt pivot in CSCO stock. Shares tumbled 8.61% while cratering below the 200-day simple moving average for the first time since the broader market’s correction late last year. Still, the immediate disdain for Cisco shares is shaping nicely for other bullish investors when looking at the monthly view of CSCO stock.
CSCO Stock Monthly Chart
If you’re unbothered by technical alarm bells warning of CSCO stock now being in bear territory, there’s actually a good deal to be upbeat about. The post-earnings pressure has shares testing the upper boundary of a key support zone within Cisco’s existing uptrend. And in our view, that’s worth monitoring for a future purchase in CSCO stock.
Specifically, Cisco is challenging prior price resistance from a congestion pattern built during 2018 which successfully launched shares past the 62% retracement area from the Dot.com crash in 2000. In conjunction with trendline supports and key Fibonacci levels tied to cycle lows from 2011 and 2016, the importance of this zone from roughly $39-$48 for CSCO stock bulls can’t be denied.
What also can’t be repudiated is the width of Cisco’s support zone is prohibitively wide. The $9 width is nearly 20% from the lower boundary of $39 to the upper edge near $48. But the solution to this problem is simple enough. For investors looking to buy CSCO as it tests this technically important price area, drill down the trade entry to the weekly chart.
Bottom line, investors using this strategy may wind up giving up a bit of performance versus the daily chart. Without the ability of hindsight, we simply don’t know the answer to that. However, by purchasing a confirmed reversal candlestick on the weekly chart, traders are more likely to avoid last week’s daily bearish pivot — which could turn into a deeper and more opportunistic correction still well-backed by CSCO stock’s big picture.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities 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 options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.