Cisco Stock Looks to Break Long-Term Resistance

Few companies exemplify the tech investing craze of the late 1990s as well as Cisco Systems (NASDAQ: CSCO). The networking giant went from trading between $3 and $4 a share in early 1996 to trading over $70 in early 2000. When the tech bear market hit, Cisco stock dropped all the way back below $10 in late 2002. Since the end of that bear market, Cisco has never been able to close a week above $30, but that could change in the near future.

While that resistance looks rather daunting, what I see from the daily and weekly charts makes me believe the stock could challenge that resistance and perhaps make a breakout move above it.
If we look at the daily chart for Cisco stock, we see that it is just reversing out of oversold territory on both the RSI and the stochastic readings. For the RSI, this is the sixth time in the last nine months that the indicator has reached oversold status. In each case, the stock rallied to some degree.
The stochastic readings show a similar pattern. When they have reached an oversold level and reversed, there has been a minimal rally at the very least and in some instances there has been a pretty significant rally.

It is what I see on the weekly chart that I find more encouraging – and the reason that I think the stock could finally break through the $30 level for the first time in 15 years.
There is a trend line that connects the weekly closing lows over the last 2 ½ years. The stock just bounced off that trend line and looks to be reversing from a down move in the last few weeks.

Looking at the weekly oscillators, we see that the 10-week RSI just hit the 40 level and reversed a little. We see how many times the area has marked a reversal in the stock price over the last 3 ½ years, while it has only reached oversold territory on two occasions. The slow stochastic readings show a similar pattern of not hitting the traditional oversold levels, but rather reversing in the 40 range.
The sentiment toward Cisco stock is moderately bullish, with a short interest ratio of 1.59 and 23 out of 38 analysts rating the company as a “buy.” An interesting note on those analyst ratings is that the last six actions taken, besides initiating a rating, were all downgrades. The last upgrade on Cisco came in November 2013. While the sentiment isn’t bearish, it isn’t excessively bullish either.
Given the hints from the daily and weekly charts that Cisco is set to rally, I think the stock challenges the resistance at the $30 level in the early part of 2016. If the stock can break through that resistance, it could rally sharply.
I would look to buy the stock at the current level, hold it through the first quarter of 2016 and then re-evaluate the position at that time. I would also look at a weekly close below the $25 level as a sign to close the position.

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