Market Overview

Cisco Systems, Inc. Shares Continue To Lag The Market

Cisco Systems, Inc. Shares Continue To Lag The Market
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Cisco Systems, Inc. (NASDAQ: CSCO) shares have shown little will or ability to participate in the market's recent rally phase. That lag may continue a bit longer before the bulls can hope for some positive results.

Cisco Systems shareholders are hoping that the current downside action is merely a correction in a long-term bull market for the stock. As long as the long-term uptrend line holds up as support in the low $23s, they have a chance of that hoped-for scenario coming to fruition.

What The Bulls See

  • A great value based on the price-to-book and price-to-sales of 2.26 and 2.72, respectively, not to mention the price-to-earnings ratio of just over 10.
  • Strong profit margins, strong cash flows and very strong balance sheet.

Related Link: General Electric Company Stock May 'See The Lights Go Out': A Technical Analysis

What The Bears See

  • A bearish "abc" downside correction pattern in progress on the price chart. The downside projection for the pattern comes in at $23.61.
  • A company with relatively low revenue and earnings growth estimates for the foreseeable future, which make their P/E of 10 not quite as "cheap."

Technical Take

The technical analysts covering Cisco note that the stock is likely to fulfill the "abc" pattern on the downside, which would take the stock down to the $23.25-$23.61 area (depending on the pivots used for the “abc” pattern). That range of support also roughly corresponds with the long-term uptrend line for Cisco.

Technicians would advocate the good reward/risk long-side play in Cisco shares once the stock pulls back to the projected support of $23.61. Before that, the odds and ratios are just not that favorable for the longs. On the other hand, the bears can hold on for another few percentage points but may get burned if they overstay their welcome once the stock approaches support.

Stock chart: 
Stock chart

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