Cisco Systems Inc. (CSCO) - Get Report qualified as a portfolio holding as 2019 began, but after a bull-market run of 21.7%, it's time to book profits. The tech giant is a component of the Dow Jones Industrial Average and qualified as one of the eight "Dogs of the Dow" for 2019 with a dividend yield of 3.32%. If you bought the stock for its dividend, book profits now as its dividend yield is 2.50% and its P/E is 20.28, according to Macrotrends.
The technical reasons to take profits now is that Cisco set its multiyear intraday high of $54.23 March 21, which is within my sell zone outlined by its monthly pivot at $51.75 and its risky level for this week at $55.03. In addition, the weekly chart shows a stochastic reading above 90.00, which makes the stock an "inflating parabolic bubble."
Cisco has a history of beating analysts' earnings-per-share estimates and the company has done so for six consecutive quarters. There was a negative reaction to earnings on May 16, then positive reactions on Aug. 15, Nov. 14 and Feb. 13. The stock broke above its Oct. 3 high of $49.47 on Feb. 14.
The tech giant makes Internet Protocol networking products for the communications and IT industries and some on Wall Street say that the company faces headwinds by the tariff uncertainties and weak global economies that seem to be ignored so far in 2019. Others tout Cisco's expansion into software development, cyber-security and next-generation infrastructure.
The Daily Chart for Cisco Systems
Courtesy of Refinitiv XENITH
Cisco has been above a "golden cross" since Oct. 16, 2017 when the stock closed at $33.54. A "golden cross" occurs when the 50-day simple moving average rises above the 200-day simple moving average and indicates that higher prices lie ahead. Note that between Jan. 24 and Feb. 5, a "death cross" nearly occurred that would have reversed the bullish signal. The close of $43.33 on Dec. 31 was an important input to my proprietary analytics. This resulted in semiannual and annual value levels at $41.70 and $39.84, respectively, with a quarterly pivot at $49.39. Note that the stock could have been bought at $41.70 as 2019 began. The close of $51.77 on Feb. 28 was input into my analytics and resulted in my monthly pivot at $51.75, which was a magnet until March 12. This week's risky level is $55.03.
The Weekly Chart for Cisco Systems
Courtesy of Refinitiv XENITH
The weekly chart for Cisco is positive but overbought with the stock above its five-week modified moving average of $50.79. The stock is well above its 200-week simple moving average or "reversion to the mean" at $35.03. The 12x3x3 weekly slow stochastic reading is projected to end this week at 90.88 above the overbought threshold of 80.00 and above 90.00 making the stock an "inflating parabolic bubble."
Trading Strategy: Buy weakness to my semiannual and annual value levels at $41.70 and $39.83, respectively, and reduce holdings with the stock between my monthly pivot at $51.75 and my weekly risky level at $55.03.
How to use my value levels and risky levels:
Value levels and risky levels are based upon the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels was based on the closes on Dec. 31. The original quarterly, semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January and February. My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in it. To capture share price volatility, investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based on back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years. The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low vs. the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best. The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold. Recently I noted that stocks tend to peak and decline 10% to 20% and more shortly after a reading rises above 90.00, so I call that an "inflating parabolic bubble" as a bubble always pops. I also call a reading below 10.00 as being "too cheap to ignore."
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Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.