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BREAKOUTS


A Big Breakout For Cisco

07/13/07 12:08:18 PM
by Arthur Hill

The Cisco Kid is back with breakouts on both the daily and weekly charts. Volume reinforces these breakouts, and higher prices are in the offing.

Security:   CSCO
Position:   Accumulate

Let's look at the breakout on the daily chart first (Figure 1). Cisco (CSCO) surged from early August to early January and then consolidated with a long triangle formation. The triangle extended from January to July (about six months), and this is a long time to consolidate (rest). The NASDAQ kept going higher during this time frame, and Cisco was actually lagging from March to June. The stock appears to be making up for lost time with a triangle breakout on good volume. This breakout signals a continuation of the prior advance, and the bulls are back in control.

FIGURE 1: CSCO, DAILY. Cisco surged from early August 2006 to early January 2007 and then consolidated with a long triangle formation.
Graphic provided by: MetaStock.
 
The significance of this breakout can be seen on the weekly chart (Figure 2). Cisco formed a large cup & handle pattern from January 2004 to July 2007 and the breakout forged a multiyear high. The cup formed from 2004 to 2006 (three years) and the handle formed in 2007. Rim resistance is set around 29-29.5 from the 2004 high and the highs of the handle. The breakout confirms the pattern and targets a move to the low 40s (29 + 12 = 41). The length of the pattern is added to the breakout point for a target.

FIGURE 2: CSCO, WEEKLY. Cisco formed a large cup & handle pattern from January 2004 to July 2007 and the breakout forged a multiyear high.
Graphic provided by: MetaStock.
 
There are now two support levels to watch. Broken resistance around 28-29 turns into support and a strong stock should hold its breakout. Ideally, the stock will just continue higher and move into the low 30s over the next few days and weeks. We cannot expect a straight move up, and there is sometimes a pullback to broken resistance. A move back to the 28-30 region could offer a second chance to partake in the breakout. The consolidation lows mark key support at 25. The stock held this level throughout 2007, and a break below 25 would be outright bearish.



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.

Title: Editor
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