More Selling Ahead for Cisco?
In a classic case of selling the news, traders sold shares of Cisco Systems (NASDAQ: CSCO) on Thursday after the company reported earnings and revenue that were better than analyst estimates Wednesday after the market closed.
Then again, with the stock closing in technically overbought territory for four days in a row, the idea of traders and active investors looking for the opporutnity to take profits in Cisco Systems should surprise no one. And with the cover of an upside profits and sales surprise, a significant number of folks fortunate enough to have owned shares of CSCO in the past few days, weeks and months, did just that.
Heading into the company’s earnings report, shares of Cisco were alerting the market to the potential of near-term underperformance. CSCO first began earning “consider avoiding” ratings of 3 out of 10 on February 3rd and continued to earn “consider avoiding” ratings for the next three consecutive trading days. These exceptionally low ratings suggested that Cisco had already reached levels where traders historically have been inclined to either take profits or sell stocks short (especially if in bear market territory).
Given the stock’s location – recently off new, 52-week highs – the low rating in the stock may be best seen as the beginning of a potential opportunity for traders and investors who were looking for a lower price point at which to go long CSCO. From this perspective, the “consider avoiding” ratings help traders spot markets that may be overdue for a short-term pullback and, potentially, short-term oversold conditions, as well.
With a neutral rating of 5 out of 10, and a positive, short-term edge of just over half a percent, Cisco Systems is providing few clues at to its next, near-term direction. But given the severity of the overbought conditions that preceded Thursday’s pullback, additional selling over the next few days would be a no less reasonable response.
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David Penn is Editor in Chief of TradingMarkets.com