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Is It Time To Buy Cisco Systems?

08/29/14 03:29:56 PM
by Koos van der Merwe

When the technicals of a stock suggest a buy, do you buy?

Security:   CSCO
Position:   Buy

In 2001, Cisco systems was trading at the $75 level, then it fell as the bubble burst to a low of $8.50. Since then the stock has been trading in a sideways range rising to a high of $34.68 and testing the low of $13.77. Is the share, at the current price of $24.81 suggesting a buy?

Figure 1. Weekly chart showing double bottom and possible double top.
Graphic provided by: AdvancedGET.
The weekly chart in Figure 1 shows price forming a double bottom at the $13.30-13.64 level. Double bottoms represent buying opportunities and as you can see on the chart, the share price started to rise as the RSI indicator suggested a buy on July 1, 2011. The price since then has risen to a high of $26.43 by August 2013. However, a double top appears to have formed at $26.16. The rule is that only when the price falls below the double top trough at $20.16 is the share considered a sell. The support line shown on the chart could provide strong resistance to a fall to $20.16. However, note the 14-period relative strength index (RSI)(14) is suggesting weakness.

Figure 2. Daily chart showing a JM Internal Band and Elliott Wave count.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a daily chart with an Elliott Wave count suggesting that the share price could be moving into a WAVE 5 with a target of $27.91. The probability index (PTI) at 64 is strong suggesting that the target price could indeed be reached. The RSI is not suggesting a buy signal. It has not fallen below the 32 horizontal line and then retraced above it. Also the price is still below the upper band of the JM Internal Band indicator. A rise above the upper band will suggest a buy. The JM Internal Band is a 15-period simple moving average offset by 2% positive and 2% negative.

Figure 3. Omnitrader chart showing Vote line buy signals.
Graphic provided by: Omnitrader.
The chart in Figure 3 is an Omnitrader chart showing a Vote line that suggested a buy signal on August 20, 2014 based on the RSI(12) strategy shown in green below the Vote line. This is a weak buy signal. Previous buy signals on the Vote line were made by five strategies suggesting a buy. The exception is the signal given on May 12, 2014 which was given by the Red Green Strategy Long 25. Note the TDIJak indicator is suggesting a buy four days after the RSI indicator's buy signal. Note that the price found support at the internal upper band.

Yes, I would be a buyer of CSCO at the present price but with only 50% of the cash I was prepared to invest. Once I receive more buy signals from other strategies below the Vote line, I would invest the rest of my capital.

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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