Potential Mutli-Year Trend Reversal Spotted for CISCO ($CSCO)

21 thg 1, 2015

Hi Fellow Risk Takers,
Here is a Reversal Breakout idea on CISCO (CSCO).

(1) During 2008 crisis period, price of Cisco has plunged from around $33 to as low as $13.50 (-56%), which signals an obvious bearish trend.

(2) Between March 2009 to August 2011, price has consolidated sideways in a large range ($27.50 – $13.50). We also note the formation of 2 significant price bottoms formed against $13.50.

(3) From April 2012 up till now, we note a steady upwards trend channel forming, with price currently hovering around $27.50, which is a critical price level at defining the general overall trend.

If price is resisted at $27.50, this means overall trend is still sideways.

However, if price is able to trade and sustain above $27.50, it indicates the end of the sideways trend and the beginning of a bullish trend.

(4) Next we look closely at price action around $27.50 levels.

(4a) This is a classic example of price being resisted sharply at $27.50. We can infer that there was a lot of profit taking and short orders being executed at that level, resulting in the sharp resistance.

(4b) Fast forward to the current price action around $27.50. You will notice a different price movement has taken place. Price has being zigzagging back and forth around $27.50 freely without clear direction yet. It is essentially a mini-consolidation across the critical $27.50 levels.

This indicates that there is now a mixture of long and short orders at that level, with no clear winner yet.
The bears are at a greater disadvantage, because with each passing day the shorts are unable to bring the price below $27.50, the case for a reversal breakout becomes more and more compelling.

(Projection)
Due to the double bottom pattern spotted at (2) and the mini-consolidated price action at (4b), we project that price intend to breakout on the upside, to establish a new bullish trend.

(Entry Condition)
Anytime from now, as long as price stays above $27.50.

(Stop Loss)
Below $26.00, beneath the lowest point of the mini-consolidation at (4b)

(Taking Profit)
The theoretical price measure indicates a reversal objective at $40.00
However it will take significant time to get there and is more suited for investors with a long term view.

Shorter term traders can look to take profit at the below 2 levels.
Take Profit Level 1: $30.00
Take Profit Level 2: $33.00

Another plausible profit taking approach will be to
a) close 40% position at $30
b) close another 40% position at $33
c) leave the remaining 20% position for the long term bullish trend to carry price to $40

(Risk)
There is a risk that bears will try to resist the price sharply at $28.50, leading to a false breakout.

Also there is a risk that new information revealed during the Earnings Release, on 11 Feb 2015, may impact the price movement in a negative way.

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