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.
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.
Trading 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.