Networking giant Cisco Systems (CSCO) has had price gaps lower or higher following its last three earnings reports, and is poised for a price gap higher after the close on Wednesday, Aug. 16.
Cisco has a positive weekly chart, which is a technical backdrop that favors a positive reaction to earnings. When you have price gaps three quarters in a row, the better technical tool is to use Fibonacci Retracement levels on a daily chart.
The daily chart for Cisco covers the retracements from the post-election low of $29.12 set on Dec. 2 to the post-election high of $34.60 set on May 8. The low followed a price-gap lower on Nov. 17 in reaction to earnings. The high followed a price-gap higher on Feb. 16. Both these price gaps were filled, which is a technical rule-of-thumb.
Analysts expect Cisco to report earnings of 55 cents a share after the close on Wed., Aug. 16. Some estimates are 61 cents a share. The bulls look for security and services applications to drive a recovery for the stock.
Cisco is a component of the Dow Jones Industrial Average, and is one of the eight "Dogs of the Dow" for 2017, with a dividend yield of 3.83%.
The Daily Chart for Cisco Systems
Courtesy of MetaStock Xenith
Cisco closed Tuesday at $32.09, up 6.2% year to date and up 10.2% from its post-election low of $29.12 set on Dec. 2. The stock is 7.3% below its post-election high of $34.60 set on May 8.
When a stock is significantly below its high, the best trading tool is drawing the Fibonacci Retracement levels. These are the horizontal lines between the post-election low and the post-election high.
Note how the price gaps from the negative reaction on earnings on Nov. 17 and the positive reaction to earnings on Feb. 16 have been filled. A positive reaction to earnings on Aug. 17 will likely fill the gap to the low of May 12 and perhaps to the low of May 17.
The earnings volatility trading range is between the 61.8% retracement level of $31.21 and the 38.2% retracement level of $32.50. The 50% retracement level of $31.86 was the low on Aug. 15. A significant gap higher on earnings targets the 23.6% retracement level of $33.30, which fills the price gap.
Investment strategy: Buy weakness to my weekly value level of $31.44. My quarterly and annual pivots are $32.30 and $32.53, respectively. Sell strength to my monthly and semiannual risky levels at $34.34 and $35.23, respectively.
Cisco Systems is a long-term laggard. The stock set its all-time high of $82.00 at the height of the tech bubble in March 2000. The pre-crash of 2008 high was $34.24 was set in Nov. 2007, and was significantly below the bubble peak. Note that the post-election high of $34.60, set on May 8, can be considered a failed test of the Nov. 2007 high.
Don't miss these top stories on TheStreet:
- The Once Hot Trend of Wearing Yoga Pants All Day Has Died
- Outlook for Nvidia, Micron and Applied Materials: Cramer's 'Off the Charts'
- Can Alibaba Live Up to the Hype Behind Its 2018 Q1 Results?
- Your Collection of Sports Memorabilia Is Probably Worthless
- 50 Reasons Dying Sears Had No Choice But to Strike a Deal With the Ruthless Amazon