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A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California on Feb. 3, 2010. (Robert Galbraith/Reuters)
A pedestrian walks past the Cisco logo at the technology company's campus in San Jose, California on Feb. 3, 2010. (Robert Galbraith/Reuters)

Schizas’ Mailbag

Expect resistance from overbought Cisco shares Add to ...

Hi Lou,

Is it time to hop on board the Cisco train?

Seems like it’s energized.

Thank you for the excellent reports.


Hey Roger,

Thanks for the assignment and your kind words. This will be the second time that I review the potential for Cisco Systems Inc. On Feb. 18, 2011, Tony wanted to know what was happening to the company as the shares were trading at $18.68. Tony couldn’t understand why a corporation with a strong balance sheet, cash on hand, and good products was not able to get investors to bid the shares higher.

It is often the case that fundamentals are not enough to move a stock higher. When I examined the charts it was clear that the shares had given up 35 per cent of their value in just under a year and that they might have to move lower.

It was observed that the shares were trading in a down channel and that it might have to retest support at $16 if it could not hold support at $18. Unfortunately the stock breached $16 and found a new low of $13.72 by August of 2011. From there Cisco provided some great trading opportunities but not without risk.

Let’s have another go at the charts and see what might be in the cards for this tech giant.

The three-year chart depicts the downtrend that held sway over Cisco from May of 2010 until October of 2011. The next advance ran until April of 2012 when it hit resistance at $21 then pulled back before the big gap up in July of 2012. Currently the shares are overbought and we should expect some resistance to come in at $19 and again at $20.

The six-month chart illustrates the aggressive advance that took the shares from $15 in July to $19 by Aug. 17. The RSI signalled the move off the lows in late July with the MACD confirming the trend in early August. At this point I would like to see Cisco build a base of support at $18.50 and the 200-day moving average before committing to a buy.

The stock has provided some great trading opportunities since August of 2011 but that doesn’t mean a buy, hold, and forget strategy will add profits to your portfolio. If you really like the story then buy in slices so that you average into the opportunity. The next flex point is the release of the first quarter for 2013 in November.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

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