NEW YORK (TheStreet) -- Tech giant and Dow component Cisco Systems (CSCO) reports third-quarter earnings after the closing bell on Wednesday, and the stock may see a jolt of volatility in reaction to either positive or negative results and guidance.
While Cisco has not been a momentum stock since 2007, recent earnings reports have provided short-term volatility -- which could mean trading opportunities. The stock peaked in 2008, after a 100% jump to a multiyear intraday high of $34.24 in Nov. 2007 from $17.10 in August 2006. After being stuck in a wide trading range for the past couple of years, the stock is not a "buy and hold" investment.
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Here are some strategies for Cisco Systems stock, based on key trading levels:
- If the stock pops above a key technical level, at $25.55, investors should enter a "good 'til canceled" limit order to sell strength until it hits another key technical level at $27.50.
- If the stock does not have an upside reaction, investors should enter a "good 'til canceled" limit order to buy weakness until it reaches $22.15, another key technical level.
Here's the daily chart for Cisco that justifies this "buy and trade" strategy.
Courtesy of MetaStock Xenith
The daily chart for Cisco ($25.15) shows the volatility over the last two years. Cisco set a multiyear intraday high at $26.49 on Aug. 7, 2013, then fell below its 200-day simple moving average (green line) at $23.06 on Nov. 15, 2013, to $20.22 into Dec. 13, 2013, for a correction of 24%.
The volatility for 2014 has remained within this broad trading range. This shows that the stock is not a "buy and hold" investment and that investors can capture portions of the trading ranges using the suggested "buy and trade" strategy.
On May 14, Cisco reported an earnings beat with the stock right on its 200-day SMA at $22.79. This propelled a trading gain of 14% to the stock's 2014 high at $26.08 on July 22. The stock then corrected 14% to as low as $22.49 into Oct. 15. The rebound to $25.40 into Nov. 7 was a gain of 13%. Investors trading the key technical levels captured a portion of this volatility.
Here's the weekly chart for Cisco Systems.
Courtesy of MetaStock Xenith
The weekly chart for Cisco stays positive, given a close this Friday above its key moving average at $24.66. If the stock closes below $24.66, it risks falling to its 200-week simple moving average (green line) at $20.48.
The momentum in red along the bottom of the chart is above 20.00 at 59.79.
The daily and weekly charts thus show that investors should be able to capture portions of the up and down volatility for the stock, and that Cisco is not a "buy and hold" stock.
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.