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REVERSAL


Cisco Slips, Slides To Support

06/28/05 07:43:31 AM
by David Penn

If your playbook reads "buy tech," does that make CSCO a go-to stock?

Security:   CSCO
Position:   N/A

Jim Cramer, of TheStreet.com and CNBC's new Mad Money, has been taking more than his usual share of abuse by some in the financial media/punditcracy for his bullishness on technology. Perhaps we are not yet emerged from an era in which anyone who had the temerity to actually like technology stocks (as opposed to merely being willing and able to trade them, up or down) will be called a fool to his or her face. ...

But given the fundamentals to which money men like Cramer refer, being bullish on technology is far from a crazy man's move. After all, with oil prices soaring, now is the time to stay away from those companies that rely on lower fuel costs. Exit cyclicals and enter technology. And with the Federal Reserve still on a mission to tighten the nation's money supply, now is the time to stay away from those sectors and companies that live and breathe low interest rates. Exit retail and enter technology.

Figure 1: Cisco. CSCO spent May in an uptrend, with only three negative days -- none of which were accompanied by outsized volume.
Graphic provided by: Prophet Financial, Inc.
 
Nevertheless, what follows is another edition of "Given all this, here is why I'm a market technician."

Cisco (CSCO), which was actually one of the tech stocks named by those who like technology here, spent May in the kind of uptrend that after-the-fact examples of technical analysis are made of (Figure 1). From a low just north of 17 to a high tipping 20 less than a month later, CSCO in May featured only three negative days--none of which arrived accompanied by particularly outsized volume.


But since late May, CSCO has spent more time moving sideways than soaring. The stock spent almost a month meandering in a horizontal trading range between 20 and 19 before making a higher high--on an intraday basis--on Thursday, June 23.

Unfortunately for Cisco bulls, this higher high is where things appear to have gone awry. Not only does the day's action itself form a bearish shooting star reversal candlestick, but also, the higher high marks a negative stochastic divergence--insofar as it is matched by a lower high in the 7,10 stochastic. A third negative with this higher high in price is that lack of follow-through to the upside on Friday (or Monday, for that matter) has created a 2B top reversal--a reversal that was confirmed with the downward price action on Friday, June 24.



David Penn

Technical Writer for Technical Analysis of STOCKS & COMMODITIES magazine, Working-Money.com, and Traders.com Advantage.

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Comments

Date: 06/28/05Rank: 3Comment: TA is okay, but CSCO is not a hot stock anymore. Not worthing trading it.
Date: 06/30/05Rank: 4Comment: 
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