technical analysis CSCO

Technical analysis of CSCO

CSCO, the representative CFD based on Cisco Systems, Inc’s shares, is one of relatively few major tech shares that ‘missed the bus’ in 2020. The shift towards cloud computing last year and generally relatively weak IT spending meant that CSCO started this year about 7% lower than it was in early January 2020. Today’s technical analysis of CSCO looks at the daily chart ahead of the company’s earnings report after hours today.

Cisco’s confirmed price:earnings ratio (‘PE’) for 2020 is 16.8, meaning that it is trading around ‘fair value’ by this measure, something that definitely cannot be said for many other major tech shares. Various more prominent companies have PEs over 40, some even in the hundreds. Cisco’s earnings per share (‘EPS’) beat estimates in all of the last four quarters by at least a couple of cents, so a negative surprise tonight won’t necessarily lead to significantly weaker sentiment.

Back on the chart itself, the next key resistance is the psychological area around $50. This is also the zone of CSCO’s high from February 2020. $35 seems to be low support but we can reasonably expect areas from moving averages and to a lesser extent Fibonacci to be more important than this fairly distant price over the next few weeks.

Technical indicators on CSCO D1

 

Moving averages give a buy signal, with all of the 50, 100 and 200 SMAs below the price and the latter having extended significantly beyond them in the first few weeks of 2021. However, the 100 SMA remains below the 200. Golden crosses of the 50 SMA from Bands above the 100 and 200 SMAs since the middle of December would typically be taken as strong buy signals on this relatively high timeframe.

Similarly to most large-cap shares at the moment, overbought is very obvious here. Price extended strongly above the upper deviation of Bollinger Bands (50, 0, 2) in yesterday’s session, having opened with a gap up. The slow stochastic (15, 5, 5) at 87 is also clearly within the zone of buying saturation. The significant spike in buying volume on 27 January might be taken as suggesting increasingly positive sentiment. However, as with any CFD on an individual share, signals from volume should be considered with caution.

Price action and Fibonacci

 

The gap up in yesterday’s session wasn’t followed through with sustained gains to a significantly higher close, but this is pretty standard in the runup to an earnings report: participants are typically reluctant to commit themselves before crucial news. On the other hand, there was also no attempt to move down and close the gap yesterday. This was the third successive higher open, suggesting high demand to buy and that participants expect more gains in the near future.

Given CSCO’s relatively high volatility and lack of clear direction in 2020, the Fibonacci fan here is less likely than usual to be reliable. However, one might adumbrate the 50% area of the daily fan (the middle yellow line on the chart) as a possible area of support in the short term. The 61.8% area (the top line) might lead some aggressive traders to project a target  around $51.20 at the end of the month, but this obviously would depend on sentiment and fiscal stimulus in the USA as well as tonight’s earnings.

Technical analysis of CSCO: summary

 

Cisco Systems, Inc is expected to release its earnings report for the fiscal quarter ending 31 January after hours today, 9 February. The consensus estimate for EPS is 68c, with the nine predictions ranging from 65c to 71c.

Overall the technical picture for CSCO is quite positive and more gains might be expected over the next few sessions if the estimated EPS turns out to be accurate. Nevertheless, CSCO like many other shares could be due a consolidation soon given very strong overbought signals.

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