Can Cisco Really Keep Chugging Higher?

Cisco is set up well for more upside, but investors may find it wise to wait out a pullback.
By Gary Morrow ,

Cisco (CSCO) - Get Report has been on a tremendous run since the Brexit low. The stock's rebound off the June 27 spike low, which nearly reached the 200-day moving average, has driven shares almost 10% higher. This week Cisco has moved into new 2016 high territory after slipping past very heavy resistance just below $29.50.

In the near term, the stock is set up well for more upside, but investors may find it wise to wait out a pullback.

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Just before the two-day Brexit selloff, Cisco was consolidating in a tight range just above the March/April highs. The stock was in need of a rest following its powerful post-earnings surge a month earlier. Cisco appeared on the verge of a fresh bull leg at the close of trade on June 23. The Brexit panic quickly wiped out the bullish pattern. Less than two days later, Cisco was off more than 7% and had reached a major support zone near its May 19 earnings-inspired breakout gap.

Cisco's post-Brexit recovery may have further to run. Just above current levels is the 2015 peak of $30.30. With momentum beginning to ease after an already impressive 10% surge this area will likely produce some headwinds. A pullback from this area is likely and would produce a low-risk entry opportunity. As this plays out, Cisco bulls should keep a close eye the $29.50-to-$28.70 area. A light-volume drift back down to this key support area would allow the stock to build a new base for a fresh rally leg.

Cisco is a holding in Jim Cramer's Action Alerts PLUS charitable portfolio. Cramer and Research Director Jack Mohr wrote recently:

We view the stock's 3.6% yield, which is not only safe but also likely to increase, as incredibly lucrative in light of the historically low-rate environment. CSCO is one of our positions with a large international exposure, and thus benefits from a softer dollar. Of course, this means CSCO feels the pain of a stronger dollar that may only get stronger as a result of the depreciating pound and euro. Still, we continue to like CSCO's evolving software business and appreciate the company's strong, stable dividend and shareholder-friendly buyback programs. We believe these should offer support in the coming days, but recognize that investors are focused on international exposure for now and trading could be irrational in the near term.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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