Cisco Systems Inc. in a range bound sell off.

Feb 18th, 2011 – Comment

This stock has given up 35% of its value since April of 2010 and it may have more ground to lose.


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Hi Lou,

Just wondering what’s been up lately with Cisco. It is currently trading at its 52 week low of $18.60 or so. The company has a strong balance sheet that should put it in good stead, they are ripe with cash, big on R & D and it seems the product they make is essential for future growth in the tech communications area. Is it just because they have had some wobbly leadership lately that investors have taken out the whacking stick? Where do you see it going from here?

Tony

Hi Tony,

One look at the charts tells the whole story at Cisco Systems Inc. ( CSCO NASDAQ). Its been range bound in a down channel for close to a year. The fundamental story about balance sheet strength, their cash position, R& D spending and their position in their industry don’t amount to a hill of beans. This stock has given up 35% of its value since April of 2010 and it may have more ground to lose.  

The three year chart depicts the grim story of a tech titan taking a thrashing. Draw a straight line from the top in April of 2010 to the $22.00 price spike in early February of 2011. That’s the upper resistance line of the channel. Next draw a straight line from the low at $21.00 in July of 2010 to the close at $18.68 on February 17 , 2011. That’s the lower support line of the channel.

As investors we need to be alert to changes in trend. The uptrend that took the stock to its April 2010 high was breached as we got into May of 2010 and its been oscillating in the down channel ever since.

The six month chart illustrates the two big gaps down that followed disappointing fundamental news released by the company. Quarterly earnings reports are flex points that investors need to be on top of. Publicly traded companies give investors lots of lead time as to when they will report their results. Make it a point to put those dates into your analysis. The next report for CSCO is May 11, 2011. Have a plan as to how you will proceed prior to that day!

The best case scenario for CSCO is a bounce off support at $18.00. If that doesn’t happen then look for support at $16.00. If it catches a bounce off of $18.00 anticipate resistance along the top of the trading channel. Until CSCO moved convincingly through the upper resistance of the channel the down trend is still in place.

MAKE IT A MASSIVE LONG WEEKEND  AND HAPPY CAPITALISM!

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