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?
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While big tech and the stock market continue to climb to new highs, Cisco Systems  (CSCO) - Get 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 Report, Amazon  (AMZN) - Get 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.