Triple Timeframe View of CSCO Fall into Support

Nov 11, 2010: 3:43 PM CST

While a one-day move greater than 10% is stellar for any stock, especially one as watched/traded as Cisco Systems (CSCO), let’s take a look at the bigger picture and journey from the monthly chart down to the daily frame to put this overnight move into a broader context.

First, CSCO’s Monthy Structure:

In the grand scheme of things, yes CSCO is down 10% for November so far (month is not yet half over) and yes that’s a terrible move for those who own shares currently.

But in the larger context – and I’m not just saying the 2000 plunge – a 10% move has occurred in the past – just as 10% rallies have materialized in a month.

Contextually, CSCO’s monthly price hovers above the key support of the 200 month Simple Moving Average (red) currently at $19.84.  That level held the prior low in 2010 and could indeed prove to be support again right here.

The long-term trend of CSCO – like Microsoft (MSFT) and a few others – is sideways, neither up nor down.

The long-term levels to watch include $30 as upper resistance at $15 (now $20) as key long-term support.

In the event that price fails to hold $20 as support, then the next downside play could result in a move to the $15 level to test long-term support – which is why what happens to price here at the $20 per share level is absolutely key to the future of price.

Speaking of, here’s the weekly structure:

For starters, the weekly chart is arguing for a potential birth or confirmation of a new price downtrend, which would trigger officially on a breakdown under $20 – particularly $19 per share.

Why?  Price formed a lower low in both June and August 2010 and then formed two roughly equal lower price highs at the $24 level.  According to simple trend reversal logic, a lower low, a lower high, and a breakdown under the established low officially reverses a long-term trend.  Watch that.

On the other hand, price does have key support at $20 – coming in from prior price levels (going back beyond this) and the 50% Fibonacci Retracement as drawn – it’s $20.67 and roughly where price trades this moment.

Price is also sitting on the lower Bollinger Band at $20.09 – which forms another indicator confluence at this level.

From a Fibonacci standpoint, a breakdown under $20 targets the 61.8% retracement at $19 immediately.  Anything under $19 argues for a reversal (instead of a retracement) back down to the $14 level.

To put that in context, that would place CSCO shares back where they were at the heart of the Recession of 2008 (and bottom in 2009).  That’s a tall order, so watch for support to form at $20 unless proven otherwise soon.

Finally, it’s surprising, but here’s the Daily Chart structure:

Strictly speaking, price just fell sharply from the upper resistance line at $24.50 to the prior September price low at $20.  It’s not supposed to happen in one day (a move from upper resistance to lower support) but it did.

This also is a sideways to down trend, where an official break and firm close under $20 reverses the trend structure – of multiple timeframes – to down/bearish.

It’s sort of an obvious level to watch – $20 per share – but you should be watching it.  It’s likely to make all the difference for the future.

If support holds, then the sideways range will likely continue, resulting in an upward bounce from here that could take price to $22.50 at least, if not $24.50 over time.

A firm break – not just by a few cents – under $20 then under $19 argues the opposite – that the sideways range broke and that lower prices are favored for the future.

Should be interesting.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

2 Comments

2 Responses to “Triple Timeframe View of CSCO Fall into Support”

  1. tomterrific Says:

    Corey:

    Would appreciate your comments or Charts on Shanghai overnight.

  2. Estocksignals Says:

    I think Cisco is going to benefit from the growth of the mobile internet. I think this is a minor speed bump in a stock bound higher in the long term.