Dow component Cisco Systems, Inc. (CSCO) underperformed broad benchmarks for many years, grinding higher in a shallow uptick more than 50 points under 2000’s all-time high in the $80s. That all changed in 2017 after the stock broke out above the 2007 high at $34.24, generating a healthy trend advance that has been carving away at the massive topping pattern that ended in 2000 with a historic breakdown.
The rally now looks ready to clear stubborn resistance in the $50s after a four-month consolidation and head into the mid-$60s, which marks the final harmonic barrier before the stock enters a long-awaited test of the multi-decade high. It may not reach that upper target in 2019, so there’s still plenty of time to establish long-term positions to benefit from the rally into resistance and a potential breakout that opens the door to the triple digits.
CSCO Long-Term Chart (1990 – 2019)
The company came public at a split-adjusted $0.04 in 1990 and entered an immediate uptrend that continued throughout the decade. The stock split an impressive eight times between 1992 and 2000 before topping out at an all-time high in the low $80s in March 2000, right after the last split date. It lost more than 90% of its value when the internet bubble burst, dumping in a one-way decline that ended at a five-year low in the single digits in October 2002.
A recovery wave into 2004 stalled near $30, establishing long-term resistance that wasn’t mounted until a July 2007 breakout added about four points before turning tail in a pullback that accelerated into a full-blown downtrend during the 2008 economic collapse. The stock held up relatively well through the crisis, holding in the low teens and well above the 2002 low, setting the stage for a bounce into the new decade.
That uptick stalled in the upper $20s in 2010, yielding a decline that completed a double bottom reversal in 2011. That marked a historic buying opportunity even though it took another five years for the new uptrend to reach 2007 resistance. The stock finally broke out in November 2017, added to gains into October 2018’s 17-year high near $50, and dumped to a six-month low in December. Bulls have been in charge since that time, generating a breakout above the 2018 high in February.
The monthly stochastics oscillator crossed into a sell cycle in June 2019 after hitting the most extreme overbought reading since 1994. This predicts lower prices in the next three to six months, but a Fibonacci grid stretched across the prior decade’s downtrend tells a more bullish story, with price action nearing a breakout above the .618 retracement that opens the door to the mid-$60s. Even so, caution is advised until the next rally wave gets underway.
CSCO Short-Term Chart (2017 – 2019)
The on-balance volume (OBV) accumulation-distribution indicator hit a seven-year high in February 2018 and entered a distribution cycle that conflicted with bullish price action into the fourth quarter. It bottomed out with price in December and turned higher into 2019, mounting the 2018 high in April. The indicator has turned sideways and bounced along new support since that time, in line with a four-month consolidation pattern.
Mixed price action since April 2019 has carved an ascending triangle or rectangle pattern that might trap bulls in a quick sell-off into the low $50s. Conversely, a rally above $58.15 would signal a breakout, but two slightly higher highs at range resistance could slow momentum or trigger another reversal. As a result, it makes sense to wait until the uptick reaches the $59 to $60 price zone.
The Bottom Line
Cisco Systems could soon mount resistance at the .618 retracement of 2000 to 2003 downtrend, setting the stage for a rally that finally brings 19-year resistance into play.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.