The American multinational technology conglomerate that develops, manufactures and sells networking hardware, software, telecommunications equipment, and other high-technology services and products, Cisco Systems, Inc. (NASDAQ: CSCO) seems to be poised for a price surge as per its latest charts.
Bullish Indications
#1 Falling Wedge Pattern: As you can see from the daily chart, the stock has been forming a falling wedge pattern for the past few months. This is marked as purple color lines. A falling wedge is a bullish pattern and once a breakout happens from it, the stock may move higher in the short term.
Daily Chart – CSCO
#2 MACD above Signal Line: The daily chart shows that the MACD (light blue color) is currently above the MACD signal line (orange color). It is also moving up from oversold levels. All these are possible bullish indications.
#3 RSI Strong: Relative strength index (RSI) is currently moving up from oversold levels and nearing 50.
This indicates the strength of the current upmove.
#4 Bullish Stoch: The %K line of the stochastic is above the %D line in the weekly chart, indicating possible bullishness.
#5 Trendline support: As you can see from the weekly chart, the stock has been on an uptrend, as it has been forming higher highs and higher lows for the past several months.
This trendline is shown in purple color in the daily chart below. The stock is currently moving up after taking support on the trendline. This is a possible bullish sign.
Weekly Chart – CSCO
#6 Oversold RSI: The RSI is near oversold levels and moving up in the weekly chart. This indicates that a bullish reversal may occur soon.
#7 Bollinger Band Support: The weekly chart shows that the stock is currently trading near the lower band of the Bollinger Band. The stock has now started moving upwards from there. At the same time, RSI is above 30 and moving up. This is usually a typical bullish setup based on the RSI-Bollinger band.
#8 Bullish Stoch: The stochastic indicator is also showing bullishness, as the %K line is above the %D line in the weekly chart.
Recommended Trade (based on the charts)
Buy Levels: If you want to get in on this trade, the ideal buy level for CSCO is above the resistance level of $40. This level is marked as a pink dotted line in the daily chart.
TP: Our target prices are $45 and $50 in the next 3 to 5 months.
SL: To limit risk, place the stop loss below $36.60. Note that stop loss is on a closing basis.
Our target potential upside is 13% to 25% in the next 4-6 months.
For a risk of $3.40, our target rewards are $5.00 and $10.00. This is a 1:2 and 1:3 risk-reward trade.
In other words, this trade offers nearly 2x to 3x more potential upside than downside.
Risks to Consider
The stock may reverse its overall trend if it breaks down from the falling wedge pattern and trendline support with a high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Happy Trading!
Tara