The weekly chart of Cisco (CSCO) shows the stock spending all of 2015 attempting to break above its 2007 high. This key resistance level is a 38% Fibonacci retracement of its historic 2000 high and 2002 crash low. It has followed these failed attempts by twice returning to support at a 38% Fibonacci retracement level, this time measured off the 2012 rally low.
The rally off this year's February low has again taken the stock back to the $29 resistance level, but a transition may be underway that could see another pullback -- and offer a short-side trading opportunity.
On the first daily chart last year's retests of $29.00 resistance and the retracements to the $22.50 support area, can be seen following a regular series of 57 day channel cycle highs and lows. The current test of the upper range is in sync with another cycle period and suggests a subsequent move lower in May, timed to potentially retrace to a channel low around the beginning of June. This projection is of course based on previous price action which may or may not repeat, so a more in depth technical look is required before making a trading decision.
Price action on the second daily chart can be seen compressing in narrow Bollinger band range just below the $29 level. The stochastic oscillator has been moving in slight bearish divergence and is making a negative crossover, dropping out of its overbought zone. Daily moving average convergence/divergence is overlaid on a weekly histogram of the indicator and is tracking lower, also in opposition to the rising stock price. These divergences suggest negative internal price momentum. Declining Chaikin money flow readings and the lower highs on the volume-weighted money flow index are reflective of selling pressure over the last month. Price and money flow momentum imply a loss of directional inertia and a potential trend reversal.
Cisco is a good risk/reward short at its current level using a buy-to-cover stop above the $29 resistance level and projecting the price target with the timing of the cycle low.
"With January behind the company and with improved spend in February and March, it appears CSCO was the least affected by softness in demand vs. its networking peers. We continue to view shares as undervalued, especially in light of the company's attractive 3.7% dividend yield and aggressive share buyback program. We reiterate our $30 price target and would be buyers on any incremental weakness."