Cisco stock is having its best earnings reaction since 2020. Here’s how to trade it from here.
Cisco Systems (CSCO) – Get Cisco Systems Inc. Report on Thursday is up almost 7% after the telecom-equipment stalwart reported better-than-expected fiscal-fourth-quarter earnings.
It’s the stock’s best post-earnings reaction since November 2020 and far better than the 14% drubbing it took when it last reported in May.
While the company hardly blew the doors off when it comes to growth — earnings slipped 4% year over year and revenue was flat — Cisco beat earnings and revenue expectations.
Further, Cisco provided 2023 revenue guidance calling for 4% to 6% growth, while saying it expects gross margin to normalize as supply-chain pressures ease.
Investors loved this news for two reasons. First, it bodes well for its bottom line and second, consensus expectations were calling for revenue growth of just 2.6%.
In other words, Cisco is “rockin’ steady” and that’s got the bulls bidding it higher.
Is this a stock more investors now need to take more seriously?
Trading Cisco Stock
Weekly chart of Cisco stock.
Chart courtesy of TrendSpider.com
With today’s earnings push, Cisco stock is hurdling above the 200-week and 50-month moving averages. It’s also trying to clear the 38.2% retracement, which is up near $49.75.
But just above that is where we run into some trouble.
The $50 to $51 region has been a key area for Cisco stock over the past several years, even before Covid. It was resistance from 2019 until 2021, then support until the second quarter of this year.
Until this zone is reclaimed, traders have to respect it as potential resistance. If it’s able to push through, it unlocks the $52.50 level as an upside target. There, the stock finds the 50% retracement and the 50-week and 200-day moving averages.
So what about the risk? The biggest risk is more a question of when resistance comes into play, not whether it will come into play.
Note that today’s high is $50. If it can’t clear the $50 to $51 zone, bulls will want to see the 200-week and 50-month moving averages act as support. How it reacts to these levels will hold clues about whether buyers or sellers are in control.
Put simply, if it holds as support, the bulls remains in control. If it fails as support, sellers gain some momentum.
Taking it a step further, should those measures fail as support, then the post-earnings gap-fill level is down near $47, while the 10-day moving average should be active support for now.
If Cisco does clear the $50 to $51 zone and climb to the higher targets, the bulls will want the $50 to $51 zone to act as support on future dips. The more key levels the stock can reclaim, the more potential support that exists on the decline.
Keep in mind that Cisco sports a market cap of $200 billion and pays a 3% dividend yield. With better-than-expected earnings and solid full-year expectations, it could be a place where institutional investors put money to work.