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Cisco Systems

02/20/03 11:58:30 AM
by Koos van der Merwe

At the height of the tech boom, a stalwart of technical analysis, Gail Dudack, stated in a CNBC interview that Cisco Systems was her best indicator as to the direction of the technology market sector. Whether this is still true today, is a matter of perspective. However, here is a report on Cisco.

Security:   CSCO
Position:   Buy

The Red/Green strategy, introduced to readers on September 30th, 2002, has given a buy signal. As you can see from the chart below, the strategy has been quite successful in trading Cisco Systems.

To determine just how profitable the strategy is I ran a test using the program Technifilter Plus. I tested the strategy from January 1st, 2000 using a break above the green moving average line, a 2-day simple moving average of the high with a forward offset of 10 days, as the close short/open long signal, and the red line, a 2-day simple moving average of the low offset forward by six days, as the close long/enter short signal. Over the period, there were 76 trades, of which 50 were profitable giving a return for the period of 276%.

Cisco Systems - A good trade.
Graphic provided by: AdvancedGET.
The strategy could be fine tuned further by including a parabolic indicator to close a position earlier, or by using a stop-loss strategy to reduces losses. Do note on the chart that the buy signal given has been confirmed by both the stochastic indicator (my preference is a 21,5,3 stochastic), and the parabolic SAR (stop and reverse) indicator. I am not that happy with the parabolic SAR indicator as a trading strategy on its own because it is inclined to whipsaw, but as a stop-loss indicator when in doubt, it can be quite useful.

My target is the resistance level at $15.65, the high point reached on January 14, 2003. A point and figure horizontal count (not shown) gives a target of $16.30. Buying at the current price of $14.31 with a 10% stop-loss, equals $1.43. Using a 2.5:1 profit to loss ratio, I would look for a profit of $3.58. The current price of $14.31 + $3.58 = $17.88, higher than the target I have estimated.

I would therefore look at Cisco Systems as a stock that should not be purchased for a long term hold - not yet anyway.

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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Date: 02/25/03Rank: Comment: hi i don t understand how you practice simple moving average ..could you please explain me... thanks help

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