Uh Oh, Cisco

 | May 18, 2017 | 12:00 PM EDT
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Being human, we all compare one thing to another. Is this the next Microsoft (MSFT) , or Facebook (FB) , or Amazon (AMZN) is often heard around the water cooler. When focusing on a single company, the question becomes: Are these days like the past days?

This question came up in our live-market Trading Room today regarding the shares of Cisco Systems (CSCO) , whose share price has been rising for years. In order to get perspective, we took a look at the monthly bar chart of the company, which goes all the way back to the glory days of the late 1990s.

Click here to view the chart in a new window

Objectively, we highlighted the final six months of that blow-off movement that created the parabolic form into the all-time high, near $68. Those that can remember that far back likely recall days where the stock price moved 10% to 30% in a few days or weeks, then did it again in the weeks that followed, then again, taking CSCO from the $20s to the high $60s (yep, a triple) in six months.

"Those were the days, my friends, we thought they'd never end", but they did, and it was ugly.

Thirty months after $70 was tested, Cisco had reached under $10; a crash of 88%. Who knew, right? Well, the same objective warnings that were alarming us then are doing so again.

Take the double-trouble sell signal of monthly stochastics (lower pane in chart) reversing from overbought extremes above the 90% threshold while price tests and reverses from the upper two-standard deviation band (olive/gold line) that controls 95% of normality. In fact, on shorter-term degrees of trend, price tested the upper three-standard deviation band (not shown here) in March, which controls 99.7% of normality. This combined manifestation of bullish extreme historically leads to months of selling, not days or weeks.

Notice how (relatively) weak these last six months have been in comparison to the finals thrust into the 2000 peak. We call this the echo of history, not the repetition. After 15 years of rising off the 2002 low, price has only achieved the zone between the Fibonacci 38% and 50% resistance levels. This lethargy implies this rolling over of momentum noted above should lead to the sharpest decline since the 2008 slide, which wiped 55% of CSCO's value in around 12 months.

Therefore, our DSE (decision support engine) objectively warns that now is the time to end all buying actions, and begin selling actions of these shares. So, if long, use $33 as your protective level for stop loss orders. If flat, use that level to establish short exposure. And, if already short, hold or add upon a break of $33.

The minimum decline implied under these conditions is for a test of the $22 +/-$2 zone, with much more bearish potential thereafter toward $12 +/-$3 in the coming two to three years.

For updates on this analysis, as well as other trading opportunities, try Ken Goldberg's DSE Alerts service for free for a couple of weeks, or contact him at support@dsetrading.com

Cisco and Facebook are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells CSCO and FB? Learn more now.

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