An old favorite with a great dividend and a potential for a breakout. Let’s look at Cisco (CSCO) (November 12, 2016)
CSCO
We’ve got Cisco ( NASDAQ:CSCO) due to report earnings on the 16th, that is next Wednesday. I want to look at this stock because this is one, honestly, I don’t really track it. It is a huge, large, mega cap company that 20 years ago was really, really awesome to trade. But there are other stocks that are just more compelling to me, but that is just me. Here is what I want you to keep in mind with this stock: From a dividend standpoint, 3 1/3 percent is a pretty good dividend for a tech company to be paying. Also, it is widely owned, that is for sure, and it is loved. So if the company reports earnings and it pops up above 32.10 (I am going to put a price alert here for members), if it pops up above 32.10 then this is what I think is going on: You look at the weekly chart, you can see, I guess you could say it is a cup and handle. It is kind of hard sometimes to categorize stock prices or charts in specific patterns, but I just look at the general dynamics of a stock, not the general dynamic stock.
So we have got resistance here, then we have resistance here that was broken through. If you just kind of look at the 40-week or 200-day moving average you can see that it is starting to move up here. And then with respect to the stock, it is coming up here as well. So for whatever it is worth I can look at this as a cup and handle, which is the most profitable pattern, I think, that there is. So you have got this cup here, and then you have got this handle here at a higher range. So a breakout to the upside, again, like above $32.00, that is a really, really bullish move for this stock. I think it is a stock that you can own. Another way to look at this, just from a pattern standpoint is, we have got lower lows here. And then if you really want to get strict you can look at it this way, and that is fine, you can draw a trendline here, you can draw it here. So we have got this kind of wedge no matter which way it trades. So if you are looking at that, then again, this 30.00 level here, this is a flat top. So a move below this negates this pattern. Resistance held, this little flirting with new highs here, but that didn’t work, so now you are out of the stock.
The way I look at this, though, I think this stock is poised to move higher, and a lot higher. But I wouldn’t be buying it before earnings. I would just wait until the company reports, because that cuts your risk down, and then you are in. But another way you can do it is, split the difference. Say, “Dan, okay I get what you are saying but I am afraid of missing the move”, which is totally valid, so take a small position here. Then if the stock pulls back down and falls below $30.00 or something, okay it falls below the 200-day moving average; darn you have taken an 8 percent or 9 percent loss on that trade, but it is a small position. On the other hand, if the stock gaps up, sure, you wish you had taken more. I wished I had taken everything I had and put it into Google ( NASDAQ:GOOGL ) on the second day of their IPO, that would have been nice, but I didn’t do that. So, you do the best that you can. But if you take a small position here and the stock moves up, at least now you are trading from a position of strength. You can buy more stock at a higher price but you still got a profitable trade going.
And I have got to tell you, from a psychological point as well as profit and loss standpoint, buying a stock that you are already profitable in, is much different, you are raising your cost basis, that is much different then buying a stock that you are taking a loss in where you are lowering your cost basis. Here, you are taking a bigger position in a stock that you are correct on. Here, you are taking a bigger position in a stock that you are incorrect on, but that you are hoping will ultimately prove you correct. Two totally different dynamics, and I think the first dynamic, where you are buying into winning stocks, that is what winning traders do. Why? Well because they’re winning, by definition. Buying into a stock when it has pulled back a lot, that is what losing traders do, because by definition you are losing on that particular trade. So get these stocks that are moving higher, not the stocks that are moving lower, and Cisco ( NASDAQ:CSCO) is one of them. That is my suggestion as far as how to trade it.
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