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Cisco Could Really Use a Post-Earnings Breakout

Cisco has has failed to rally with its tech peers. Will that change after it releases earnings Wednesday?

While big tech and the stock market continue to climb to new highs, Cisco Systems  (CSCO) - Get Free Report has been struggling.

The stock endured six straight weeks of declines, sending it from a high above $57 in July to a low near $45. Even though the stock is up almost 10% from that August low - and even more from its December low - this choppy action has been disappointing to investors.

That’s as the Nasdaq and S&P 500 continue to hit new highs, along with Apple  (AAPL) - Get Free Report, Amazon  (AMZN) - Get Free Report and many other large tech companies powering higher.

Cisco investors are really hoping that the company’s fiscal second-quarter earnings report, due up after the close on Wednesday, will be the catalyst that kick-starts the rally. If it disappoints, CSCO could remain range-bound - or worse.

Let’s look at the charts.

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Trading Cisco Stock

Weekly chart of Cisco stock.

Weekly chart of Cisco stock.

I’m not much of a head-and-shoulders (H&S) trader, but they are hard to ignore when they jump out from the charts. With Cisco’s weekly chart above, we have just that as an inverse head-and-shoulders formation is setting up.

The “neckline” is near this $49.50 area, the “shoulders” are near $45.50 and the “head” is down near $43. With an inverse H&S setup, traders are looking for a breakout over the neckline, propelling the stock higher.

For Cisco, a breakout would be a welcome sight for investors. A move over $50 will also send shares north of the 50-week moving average and the 50% retracement for the one-year range, adding some significance to this potential move.

Over $50 and investors will start considering more upside levels, with $56-plus being the objective. In between, it faces the 38.2% and 23.6% retracements at $51.93 and $54.02, respectively.

What happens if this breakout doesn’t materialize? 

On the downside, investors will want to see the $45.50 level and the 100-week moving average hold as support. Below puts long-term uptrend support (blue line) on the table, with the $43 summer lows in play below that.

So what’s the bottom line? The stock really needs to find some upside momentum and a post-earnings breakout could be the perfect catalyst. Let’s see if shares can find a positive reaction to the quarterly report and break out over $50 as a result. On a pullback, the $45.50 to $47 area will be an important zone for the bulls.