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Is Cisco Systems A Sell?

02/25/15 11:37:02 AM
by Koos van der Merwe

On February 18, 2015 Cisco announced the contribution of a free version of its powerful ConfD management agent software, to accelerate the adoption of programmability for the broader networking industry.

Security:   CSCO
Position:   Sell

"We continue to see strong demand from networking vendors, as they sharply ramp up their efforts to provide standardized programmatic interfaces to their virtual or physical network devices," said Fredrik Lundberg, director of strategy and planning. And the stock market seems to like Cisco Systems (CSCO), a company that once traded at $75 and fell to below $10.

Figure 1. Monthly Chart Showing The Trend.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a monthly chart showing how the share price dropped from a high of $76.23 in April 2000 to a low of $7.89 by October 2002. Since then, the share price has recovered slowly, reaching a high of $34.51 by November 2007, and then continually testing the support line at $11.92 and $13.79 in August 2011. From that level the share price is slowly rising, nothing spectacular but a convincing recovery. However, the relative strength index (RSI) is at overbought levels, suggesting that a correction could occur in the near future.

Figure 2. Weekly Chart With Elliott Wave Count.
Graphic provided by: AdvancedGET.
The chart in Figure 2 is a weekly chart, showing how the share price rose from a low of $13.79 in August 2011 and the Elliott wave analysis is suggesting a target of $32.21 as the high for WAVE V. The Elliott wave count looks normal. This is the first rule of an Elliott wave count, that the wave must look normal. So you can expect a wave 3 to form with a wave 4 correction and a wave 5 possibly taking the share price to the suggested target of $32.21. if not higher. The RSI is overbought, suggesting that a sell signal could be on the cards.

Figure 3. Daily Chart With Elliott Wave Count That Could Change.
Graphic provided by: AdvancedGET.
The daily chart in Figure 3 presents an Elliott wave problem. The wave count shows that a WAVE V formed on December 26, 2014 with the price at $28.59. The price corrected as expected, to a low of $25.89 by January 30, 2015 with the RSI looking for but not realizing oversold levels. The price then unexpectedly gapped upwards, and could be forming an island reversal, which is where a gap down could occur. Should this happen, the Elliott wave count will change. You must never forget that an Elliott wave count is purely a signpost in the wilderness, and can change its count at the next signpost just down the road. Note the JM Internal Band buy & sell signals. A JM Internal band is a 15-period simple moving average offset by 2% positive and 2% negative. A buy signal is given when the share price breaks above the upper band, and a sell signal is given when it breaks below the lower band. The JM Internal Band gave a buy signal on the gap formation.

Figure 4. Omnitrader chart showing Vote line.
Graphic provided by: Omnitrader.
The chart in Figure 4 is an Omnitrader chart showing a sell signal given on January 28, 2015 based on sell signals given by all the strategies shown below the Vote line. However, with the gap on February 12, the Vote line gave a buy, based on three strategies below the Vote line. Do note that the price is flirting with the upper band, suggesting that a sell signal could occur. Also note the two indicators, with the RSI at overbought levels, but the TDIJak indicator still rising. Volume however has fallen, suggesting weakness.

I would not be a buyer of CSCO at present levels, and would prefer sitting on the sidelines, waiting for a correction.

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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