Cisco Systems Needs to Develop a Base Pattern

Let's keep an eye on this one.

For his second "Executive Decision" segment of Wednesday's Mad Money program, Jim Cramer spoke with Chuck Robbins, chairman and CEO of Cisco Systems (CSCO) , the networking equipment provider.

 

Shares of Cisco currently trade for 13 times earnings with a 3.4% dividend yield.

 

Robbins quipped that despite reports to the contrary, business is still "alive and well" at Cisco. The effects of the lockdowns in China are only temporary, he said, and they are already seeing positive signs in the supply chain. Customers still turn to Cisco for innovation. Robbins said he still sees value in the market and opportunities for additional mergers and acquisitions.

Robbins said that there are a lot of complications in the world right now, but companies have been through a lot over the past few years. They don't panic and stop spending like they used to at every little hiccup. Companies are far more resilient now.

Let's check out the charts of CSCO again. In our May 18 review we wrote that "I have no special knowledge of what CSCO is going to report to shareholders tonight, but the charts suggest we could see a tradable rally in the days and weeks ahead. This anticipated rally could fizzle and disappoint because the Point and Figure charts are bearish. Though I anticipate a bounce and would not go so far as to recommend purchases for a trade."

In this daily bar chart of CSCO, below, we can see that prices gapped lower in May in reaction to earnings. Prices quickly rebounded after the gap but only "filled" about half of the gap which tells me that there are still anxious sellers out there.

Trading volume really soared on the gap down and the On-Balance-Volume (OBV) line plunged to a new low which is a sign of aggressive selling. The OBV line has recovered slightly in recent days.

The Moving Average Convergence Divergence (MACD) oscillator is in sell territory below the zero line and crossed to a cover shorts buy signal in late May.

In this weekly Japanese candlestick chart of CSCO, below, we can see that prices made a harami bottom reversal followed by a doji which I consider a less than stellar bullish confirmation of a low. The harami may have only shifted CSCO from a downtrend to a sideways trend.

The weekly OBV line has been soft all calendar year. The MACD oscillator is bearish.

In this daily Point and Figure chart of CSCO, below, we can see that the software points to a downside price target in the $28 area.

In this weekly Point and Figure chart of CSCO, below, we see the same $28 price target as on the daily chart above.

Bottom line strategy: CSCO may have promising fundamentals but right now the bears are still in control of the charts and indicators. I am going to add CSCO to my market minder page to keep an eye on it.

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