CSCO Stock: More Upside with NTGR Stock
Cisco Systems, Inc. (NASDAQ:CSCO) stock is a juggernaut in the computer networking space, and this sector continues to see growth, as the global economy is consuming data at an exponential rate. CSCO stock has done exceptionally well this year, but it is not the only name in this space. Being the juggernaut has its benefits but, for investors, there is only so much appreciation that a stock can endure before valuation concerns start to develop.
I am not saying by any means that Cisco stock is overvalued; I am stating a point that there other companies in this space that have products that are similar—and perhaps better—that offer investors much more growth in potential upside. The company I really like is NetGear, Inc. (NASDAQ:NTGR), and it has a tiny market cap of $1.75 billion, compared to CSCO stock’s market cap of $153.2 billion.
It’s not the market cap that originally caught my eye. I am a trader who uses technical analysis as a tool to discern trends and forecast prices. From a technical standpoint, NTGR stock has such an attractive chart that it simply cannot be dismissed as anything but perfection. So much so that I originally couldn’t believe what I was seeing.
The following NetGear stock chart illustrates the pattern that had me in awe.
Chart courtesy of StockCharts.com
NTGR stock spent four years, from 2011-2015, creating an extremely large symmetrical triangle. Symmetrical triangles are a consolidation pattern that is defined by two converging trend lines. The price bounces off each support and resistance level, and momentum is being built. For this reason, these patterns act like coils. Momentum is built until one of the support or resistance lines are broken, and then shares are left free to surge.
The reason I am so enamored with this chart is its sheer size and duration. This is a massive triangle, and large patterns of this duration are usually accompanied by explosive exponential outcomes. This is why it should not be surprising that NTGR stock surged soon after this pattern was successfully tested in February 2016.
The rally has run its course and the price of NTGR stock has begun to correct. I have been waiting for an opportunity to board this play, and I believe an opportunity to acquire a position will soon present itself.
The following chart illustrates the price level that I believe will act as support.
Chart courtesy of StockCharts.com
As soon as NTGR tested the symmetrical triangle, an ascending channel quickly developed. This channel served to contain the price as it trended higher. The price oscillated between support and resistance until this pattern finally came to a conclusion in October 2016, when NTGR stock fell below the trend line that served as support and signaled a trend reversal.
This trend reversal is the opportunity I have been patiently waiting for. The range between $45.00 and $47.00 is the level that is marked as “Support” with a blue horizontal trend line. This level of support acted as a previous level of resistance, as it marked the 2011 highs, as well as the 2015 highs. This is the level I am targeting.
This level also coincides with the 200-day moving average, and the significance of this moving average is that it is the dividing line between stocks trading in a bull market versus stocks trading in a bear market. When the share price is above the moving average, it is bullish; when the share price is below the moving average, it is bearish.
The convergence of both trend lines and the moving average should provide ample support, as traders will be eyeing both levels.
The Bottom Line on NetGear Stock
I am bullish on CSCO stock, but it is not the only name in the networking space. I have been enamored with NetGear stock since I stumbled upon its price chart. I have always wanted an opportunity to acquire NTGR stock, and I believe that a pullback to support will provide me the opportunity I have been looking for.