TAKEAWAYS
- CSCO stock has pulled back to its 21-day exponential moving average and is poised for a reversal.
- Monitor the stochastic indicator to confirm a reversal in CSCO's stock price.
- If you enter a long position in CSCO, establish your stop loss and have the discipline to stick to it.
Stocks can move fast, like the speed of an arrow flying through the air. And if you don't monitor your charts, you can easily miss a trading opportunity.
Last week, I wrote about CSCO stock, one of the stocks filtered in my StockCharts Technical Rank (SCTR) scan. At the time, I was waiting for CSCO's stock price to pull back to its 21-day exponential moving average (EMA). Well, it happened a lot quicker than I anticipated.
It's good that I go through all my ChartLists every trading day. The pullback also coincided with the upward-sloping trendline. It was accompanied by declining relative performance against the Nasdaq Composite ($COMPQ) and a decline in the value of the full stochastic oscillator.
Is this a classic buy-the-dip moment? To answer the question, let's look at the daily chart of CSCO.
FIGURE 1. DAILY CHART OF CSCO STOCK. The uptrend is still in play, making the pullback to the 21-day EMA an attractive entry point.Chart source: StockCharts.com. For educational purposes.
The uptrend broke slightly to the downside, but the support from the 21-day EMA was strong. Thursday's price action indicated a reversal is possible.
The stochastic oscillator is approaching the 50 level and is starting to turn higher. The last two times CSCO's stock price pulled back to the 21-day EMA, the oscillator turned up at around the 50 level. I'll be watching to see if a similar scenario unfolds this time.
CSCO's price action looks attractive. I'm ready to open a long trade in CSCO when the %K line crosses over the %D in the stochastic oscillator. CSCO's stock price hit an all-time high in early December, so a pullback is a prime time to open a long position if all your criteria are met.
The Game Plan
Cisco Systems may not be a direct AI play, but it is a networking company, and the stock could benefit from tech companies' increased AI spending. So it's not too far-fetched to anticipate CSCO's stock price to ride along with the AI wave.
Thursday's price action does not yet confirm a bullish upswing, but I'll watch this chart closely. It's an opportunity I don't want to miss.
Even if it looks like a near-perfect setup to buy on the dip, there's still a chance the trade could go against me. If I enter a position at around $59 and the trade goes south, the 50-day SMA would be my maximum stop loss.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.
Good Luck!
