CSCO Stock: Abiding by the Rules Set Out by Technical Analysis
Cisco Systems, Inc. (NASDAQ:CSCO) stock continues to make strides toward higher CSCO stock prices, and it has just created a new multi-year high. The factor that makes this feat special is that it has recently completed a technical price pattern that is reinforcing this move toward higher CISCO stock prices.
This is a delightful change from the last time I published a report on Cisco stock (May 24). At that time, this stock suffered a setback when it reported earnings that were deemed a disappointment by the investing community. In response, investors sent the share price spiraling lower by 8.5%.
This prompted me to write a report titled “Cisco Stock Is Testing an Extremely Important Level of Support,” in which I outlined that, although the share price did experience a setback, it was still within the confines of a bullish trend as long as it remained above certain levels of price support.
These levels of price support are highlighted on the following Cisco price chart.
Chart courtesy of StockCharts.com
This Cisco stock contains two influential and significant levels of price support.
The first level of price support is defined using a previous level of price resistance. This level of resistance thwarted all attempts to move beyond it for all of 2016. This inability to advance beyond the resistance level changed in February 2017, when Cisco stock gathered enough strength to break above it. When a significant level of price resistance is finally broken, it becomes a new influential level of price support.
The second level of price support is defined by using the 200-day moving average. This metric acts as a dividing line that separates investments in a healthy bullish state from investments in an unhealthy bearish state.
Distinguishing between these two polar opposites is as easy as determining which side of the 200-day moving average the investment is trading on. Above the moving average is bullish and below it is bearish. This moving average has a tendency to act as both a level of price support and price resistance.
In May of this year, these levels of price support coincided at one price point. Coinciding levels of price support are both significant and influential. I stated in my previous report that, as long as CSCO stock remained above both of these coinciding metrics, a bull market was still in development and, therefore, the only inclination I could support is one that involved higher CSCO stock prices.
These coinciding levels of price support proved their merits and, for the next five months, these levels were tested with vigor. The bulls triumphed when the stock price finally pulled away from them in an upward direction, filling the gap that was created in May, following the disappointing earnings report.
This led to the current developments, which are suggesting that further gains can be expected. These developments are highlighted on the following Cisco price chart.
Chart courtesy of StockCharts.com
This stock chart illustrates that over the course of last six months, CSCO stock has created and completed a cup and handle price pattern.
This pattern contains two troughs, where the first trough is much larger than the second. These troughs are a result of a significant level of price resistance that thwarted attempts to move beyond it.
On October 20, Cisco stock broke above resistance, completing this pattern, which is currently suggesting that higher stock prices are on the horizon. Technical price patterns are instrumental on many fronts, and aside from suggesting that an advance is in development, this cup and handle price pattern can be used to create a potential price objective.
This price objective is created by taking the depth of the pattern and extrapolating that value above the level of price resistance that defined it. This creates a potential price objective of $37.50, which will act as the next stop on this move towards higher CSCO stock prices.
Cisco stock is technically sound, and the current technical price pattern that was recently painted on the stock chart is suggesting that higher stock prices are currently in development. Given the technical backdrop, I am bullish on this investment, and will remain so until there are indications on the company’s stock chart that suggest another view is warranted.