CSCO Stock Is Inches Away From Breaking Out Toward Higher Prices

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CSCO Stock: These Signals Will Confirm a Sustained Move Toward Higher Prices

Cisco Systems, Inc. (NASDAQ:CSCO) stock is trading higher on the day by 4.15%. This move toward higher CSCO stock prices is a result of investors reacting to a better-than-expected earnings report. The company reported earnings that beat both on the top and bottom line. That is great news, but the icing on the cake is that the company is also increasing forward guidance.

Investors have bid up the CSCO stock price. It is currently testing its 52-week high, which resides at $46.01. This is a significant level of price resistance. A sustained closing above it will open the door to much higher stock prices.

There are a number of technical indications currently supporting higher CSCO stock prices.

The first indication I would like to highlight is captured on the following Cisco stock chart.

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Chart courtesy of StockCharts.com

This CSCO stock chart captures a bullish trend containing price action characterized by a series of higher highs and higher lows.

This price action is the quintessential characteristic that defines a bullish trend. It has created the infamous stair-step price action that bullish trends are so famous for.

This bullish trend was confirmed when a golden cross was generated in April 2016, when the 50-day moving average (highlighted in blue) crossed above the 200-day moving average (highlighted in red).

A golden cross signals that a bull market is in development. True to its nature, after this signal was generated, a sustained move toward higher stock prices followed.

This bullish signal was in danger of being negated by a death cross, which is the complete polar opposite of a golden cross—it implies that a bear market is in development. This inability to generate a bearish signal is an indication suggesting that the stock is inherently strong and still geared for further gains. This is why the stock price began to accelerate soon after this bearish signal was averted.

The moving averages responsible for generating the golden cross remain in bullish alignment, which bodes well for things going forward. This signal continues to suggest that higher Cisco stock prices are on the horizon because a bull market is still in development.

At the moment, CSCO stock is on the verge of completing a wave structure and generating a bullish momentum signal that will support and reinforce the notion that further gains are on the horizon.

The wave structure and the momentum indicator are highlighted on the following Cisco stock chart.

Chart courtesy of StockCharts.com

This CSCO stock chart highlights a wave structure (consisting of impulse waves and consolidation waves) and the momentum indicator that has been supporting these waves.

The waves highlighted in green are impulse waves. Impulse waves capture the stage in a bullish trend when a stock sustains a progressive move toward higher stock prices.

The wave highlighted in purple is a consolidation wave. Consolidation waves capture the stage in a bullish trend when the stock price corrects and refrains from advancing. These waves create the stair-step price action that bullish trends are so famous for.

CSCO stock is currently within a consolidation wave suggesting that the stock price is caught within a correction. Consolidation waves are very important in the development of a bullish trend because they create the necessary conditions so an impulse wave can follow.

When Cisco stock sustains a close above resistance, it will suggest that a consolidation wave is complete and that a new advancing impulse wave is in development.

When such an event takes place, the development of an impulse wave will need to be accompanied by a bullish moving average convergence/divergence (MACD) signal.

MACD is an influential momentum indicator that uses the crossing of a signal line to determine whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is geared toward higher prices. Bearish momentum implies that a stock is geared toward lower prices.

In order to sustain a move in either direction, the applicable level of momentum is required. That is why the waves within this wave structure coincide with this indicator.

This is why impulse waves have coincided with a bullish MACD signal and consolidation waves have coincided with a bearish MACD signal.

Cisco stock is currently in a consolidation wave, which has been confirmed by a bearish MACD signal. In order to suggest that this wave has run its course, the stock price needs to break out to a new high and generate a bullish MACD signal.

The good news is that CSCO stock is currently testing its previous high and the MACD signal lines are converging. Once these signals are generated, I will have the necessary signals to suggest that Cisco stock is ready to sustain another move toward higher stock prices.

Analyst Take

Cisco stock is on the verge of generating a technical signal within its bullish trend that will suggest that further gains in CSCO stock are likely to follow.