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CISCO, Filling A Gap With A Gap

10/31/12 08:51:12 AM
by Koos van der Merwe

With a hurricane in the air, the market closed for four days, and with Cisco looking like a promising buy, if and when do you go for growth or a safer investment?

Security:   CSCO, AGNC
Position:   Accumulate

So, with the market as confused as it is; with a US Presidential election in less than a week's time; with a hurricane closing the stock exchange for two days, and with God knows what is developing on the horizon, would any sane person start investing in the market for growth? I do not think so.

FIGURE 1: CSCO, DAILY. Here's a chart of Cisco showing a gap filling a gap.
Graphic provided by: AdvancedGET.
Figure 1 is a daily chart and shows the following:

a. A gap forming on May 9 at $18.47. The share price then fell to a low of $14.99 by July 25.
b. The price rose to fill the gap at $17.81 by August 9. The share price then rose on a gap to a high of $19.77 by September 6.
c. From that high it then fell to fill the gap at the present price of $17.23.
d. The relative strength index (RSI) is oversold, suggesting a future buy signal.

The rule says that the price should now rise to fill the gap at 17.81, if not higher. So would we buy CISCO at the current price or wait for a more positive buy signal? If you are scared to go for growth, then what would you look at?

FIGURE 2: AGNC. American Capital Corp with the RSI showing a buy.
Graphic provided by: AdvancedGET.
Figure 2 is a chart of American Capital Agency Corp. (AGNC). The chart is suggesting that a buy signal is on the cards. As a cautious investor, rather than buying a growth share, you may be better off buying a share that offers a good yield. At the present price, the yield is 15.96%, which looks extremely interesting.

So do you go for growth, or do you go for yield? With uncertainty in the market until after the Presidential election, going for yield may be the way to go. I would rather be a buyer of American Capital Corp. than Cisco.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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