Bearish Candles Turn Cisco Back

07/25/05 12:54:07 PM

by Arthur Hill

Cisco (CSCO) led the market higher in May, but cannot break through key resistance as bearish candlesticks form on each attempt.

Security: CSCO
Position: Hold

On the weekly chart, the stock declined below 20 in 2004 and then formed a long base. The pattern looks like an inverse head-and-shoulders reversal and a break through neckline resistance would be quite bullish. As long as resistance holds, this pattern is neutral at best and represents a consolidation.

Resistance stems from broken support (green arrow) and the stock has been turned back at least six times in the past year (gray arrow). A break above this resistance zone (20.65) would be very bullish for the stock, the Networking Group and the Nasdaq.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

These failures reinforce the resistance zone. As long as 20.65 holds, a trading range is the best Cisco can muster with support around 17 and resistance at 20.65. A break above 20.65 would confirm the inverted head-and-shoulders and argue for a move to the next resistance level around 25.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

On the daily chart, the stock surged back to 20 the first three weeks of May, but cannot break through resistance as bearish candlesticks emerge on each challenge. A white/black harami formed in May (blue oval), a shooting star in late June (black oval) and a white/white harami last week. The sharp decline over the last two days confirms the harami and signals another failure. The stock must overcome this failure with a move above the July high (20.25) to get the bulls moving again.

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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