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ELLIOTT WAVE


Waves And Wedges For Cisco

06/04/04 09:46:51 AM
by Arthur Hill

Nasdaq titan Cisco Systems sports a falling wedge that could mark Wave 4.

Security:   CSCO
Position:   Accumulate

The Elliott wave structure since October 2002 is fairly straight forward. Wave 1 extends from 8.12 to 15.48, Wave 2 from 15.48 to 12.33, Wave 3 from 12.33 to 29.39 and Wave 4 from 29.39 to 20.68. As is typically the case, Wave 3 is the longest in both price appreciation and duration.

Cisco System's weekly chart.
Graphic provided by: MetaStock.
 
It is unclear whether or not Wave 4 has ended and Wave 5 has already begun. The pattern for the Wave 2 decline was a falling wedge that retraced 38-50% of Wave 1. The pattern for Wave 4 also looks like a falling wedge and it has currently retraced 50-62% of Wave 3. Both the retracement and the pattern are normal for corrections. Also notice that the stock is finding support just above 20 from the September-October consolidation (gray oval).

A breakout and Wave 5 advance would project further strength above 30. The first resistance test is the upper trendline of the falling wedge and the stock is currently challenging the 22 level. A move above 22 would be positive and further strength above the April high (red line) would clear the way for Wave 5. This final wave should exceed the high of Wave 3 and is typically 38-62% as long as Wave 3, which saw a 138% advance. As such, the projected advance for Wave 5 would be 52% to 85% (138 x .382 = 52.7 and 138 x .618 = 85.28). This would make for a target zone between 31.64 and 38.25 (green box).



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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