|As the chart shows, Cisco ran into a previous resistance level from last August and proceeded to make a small double top. The correction that followed more than fulfilled that topping formation by measurement (the double top to trough is about $1 vs. the $1.70 actual decline from the trough) as two previous gaps were filled. When a stock gets ahead of itself it often comes back down to fill previous gaps before resuming its advance.|
|By drawing the previous trendline that was broken to the upside by the last advance, we have a support target. So far this support area has held. Note that this trendline also coincides with CSCO's 50-day moving average, currently at 12.91. This combined support should be a significant level. This move back down to the trendline illustrates the principal of "what was resistance becomes support."|
|Graphic provided by: StockCharts.com.|
|The displayed indicators show the promise of support but need improvement reinforce this chart's bullish intent. The directional movement indicator ADX/DI shows an improving but still bearish setup: -DI is starting to weaken as +DI has stopped declining. If bullishness continues, these DIs will converge further and may eventually cross, adding additional bullish power. Meanwhile the MACD (moving average convergence/divergence) indicator shows the chance of a reversal at or near the zero line. Likewise the RSI index shows an uptick to the 50-percent level. A move above this 50-percent level would be bullish just as refusal to do so is bearish. This 50-percent level often marks turning points. The stochastics oscillator shows an attempt to move past an oversold situation. This indicator needs to build momentum past this 20-day level to reflect bullish improvement.|
|At this point Cisco is a buy for aggressive traders anticipating further bullishness as hinted by this chart. Resistance levels going forward from here are $14, gap resistance at $14.50, and finally the previous top that occured around $15.45.|
Reversals at any of these points may lead to another test of the lower trendline. Two suggested "uncle" points for longs selling their positions on weakness would be a move under the 50-day moving average or a move below the red trendline, should this early bullishness fail. Otherwise short-term traders can target those upside resistance levels to consider locking in profits or simply ride the move up until signs of reversal are met.
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