Shares of Cisco (CSCO) - Get Report could be headed for a breakout. The stock finished Tuesday just below a heavy resistance area. A clear break past the $28 area would take out the stock's initial December high as well as the flatlining 200-day moving average. Once beyond this significant zone, Cisco has plenty of room to run.
It remains a bit early, but investors should take a much more bullish view of the action if upper band of the stock's seven-week range is violated.
Toward the end of Cisco's pullback from the October high, the stock suffered a steep selloff. On Nov. 13, Cisco opened with a huge earnings-inspired gap that dropped shares well over 5%. Downside volume soared to its heaviest level of the year on the negative news. But with the drop from the October peak now stretched to nearly 12%, there was no further downside.
Cisco began to repair the damage immediately, and by the end of the following week, the huge Nov. 13 breakdown gap had been filled. The stock stalled at the gap as the post-earnings consolidation continued. In early December, Cisco took another dip but managed to put in a higher monthly high as the pattern began to strengthen.
Cisco is now back up to the top band of the post-earnings consolidation. The stock is not yet in the clear, but an upside resolution now appears much more likely. Investors should keep a close eye on the $28 area in the near term. A close above this level could spark a new bull leg. Until then, the area between last week's high of $27.55 and the Dec. 23 breakout gap at $26.90 should support the stock. A close below this zone would send the stock into a deep pullback.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long Cisco.