Chart of the day: with Cisco on sale now, why do technicals signal a fall?

Cisco Systems, the giant network product giant in San Jose, reports results on Q4 2019 on Wednesday, August 14 after the bell. Expectations are for $ 1.14 earnings per share and $ 2.55 billion in revenue. That's versus $ 1.76 earnings per share and $ 3.12 billion for the corresponding quarter last year.

In the past six years, Cisco (NASDAQ 🙂 has only missed out on EPS once (November 2013) and twice on revenue (November 2018 and February 2019). The company is expected to beat again at Wednesady after having released a series of upward guidance revisions in the past quarter.

During this period, Cisco provided stronger-than-expected revenue after the company adjusted prices and worked closely with suppliers to compensate for problems of the trade war with China. In addition, the company reduced its total sales in China to just 3%.

Nevertheless, Cisco shares closed 21% YTD on Friday, barely better than the + 20.79% gain over the same period of its reference index, the, where its 2.731% weighted the 7th & # 39; toughest & # 39; of makes the 100 components of the index.

Why has a company that apparently pulled out all the stops to compensate for the headwind of the trade has been unable to clearly outperform its broader index? The technical charts can offer some insight into supply and demand.

CSCO Daily

During last Monday's sale, the share has fallen under the rising channel since April, after falling below the upward line on July 31, since the Christmas Eve routine. Conversely, his index, the NASDAQ 100, found support from his upward line from the same period, he bounced on it and confirmed the upward trend.

In addition, after finding support from the 200 DMA, which was in line with the May lows, the price was consolidated with an upward preference. After the double-digit sale the week before, this rising congestion shows all the significant signs of a line-up for another part in the recession.

This scenario fits the technical pattern, a rising flag – bearish after one leg down – after breaking the channel bottom support, whose current resistance was confirmed with the fall of Friday, and before he tried the 200 DMA to record for the second time. Also note the volume: it dried up in the previous rally and peaked in the middle of the sale.

The volume is also falling against the rising flag, another sign that the demand is drying up. This is further proof of a completed completion of the flag pattern with an outbreak of a disadvantage.

Why has Cisco been unable to separate itself from the sector despite the greater independence of Chinese revenue? Although we are not sure, it can be assumed that the company is now hampered by residual negative sentiment, for which Cisco is not to blame.

Or perhaps this price campaign is driven by informed money, people who are close to the inner circle and have picked up negative rumors. Meanwhile, ironically, of 30 analysts, 21 now have a purchase rating on the shares, with zero a & # 39; sale & # 39; offers.

If there is a downside to the flag, however, we will be the first to call a sales signal.

Trading Strategies

Conservative traders may be waiting for weekly descending peaks and troughs to set up a long-term downtrend.

Moderate traders can take a short position after the price falls below 200 DMA and finds resistance in a return movement.

Aggressive traders can be satisfied with making the stock short with a negative outcome of less than $ 52.

Example of input: short installation

Input: $ 53 Stop loss: $ 53.50 Risk: $ 0.5 Target: $ 51.50 Reward: $ 1.50 Risk / reward ratio: 1: 3

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