Cisco Up — So What?
Much ado has been made of Cisco
Systems’ overnight earnings report, but as a trader, don’t let any company’s past record bias your market watch.
Cisco Systems
(
CSCO |
Quote |
Chart |
News |
PowerRating) is showing
less than impressive action. Overnight, the computer networking gear maker
reported fiscal Q1 earnings of 18 cents a share vs. 11 cents a year ago and
topping First Call/Thomson Financial’s estimate by a penny.
Shares closed up 1 5/8 to 56 3/4 Tuesday on
nearly twice Cisco’s usual trade. Not bad. That’s real accumulation, but the stock
is flat with its close two days ago before Monday’s pre-report selling. Cisco
also continues to trade below its 50- and 200-day moving averages as well as
well off its mid level of about 63 5/8.
For long trades, I insist that recently
corrected stocks overcome their mid levels and their 50- and 200-day moving
averages. Stocks that correct, then recover above those benchmarks have managed
to chew through a great deal of overhead supply. Overhead supply is the amount of shares in
the hands of shareholders with paper losses. These weak
holders tend to look for exits and sell into rallies, blunting
further share-price progress. You can find a stock’s mid level by
summing the pre-correction high and the post-correction low, then dividing the
result by 2.
Let the market point your way to the
next generation of leaders if a sustainable rally develops. Cisco is a great
company, but no one knows whether Cisco or other past greats can lead the market
in the next bull phase. Let the market tell you. The leaders will step forward
on their own and will alert you by moving up on positive news, showing clear
accumulation, high relative strength for the past six to 12 months, and breaking
out of sound bases.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
check out the Money
Management area of TradingMarkets’ Stocks Education section.