The technology sector is off to another great start so far in 2017, but Cisco Systems, Inc. (NASDAQ: CSCO) may have trouble keeping up. In recent days, the stock pushed back above $31 for the third time since September, but all three times the $31-32 rage completely stopped Cisco’s momentum. Here’s a look at where the stock could be headed next.
Assuming Cisco doesn’t break above $32 within the next couple of weeks, its January peak will serve as the third prong of a triple top. Cisco peaked at $31.42 in September then again at $31.62 in November.
Triple tops are notoriously bearish chart formations. The more times a stock tests a resistance level and holds, the stronger the resistance becomes. Once a resistance level has been established multiple times, traders and short sellers will use that level as a sell point, reinforcing its resistance strength. As a result, double and triple tops are often more difficult for stocks to break through than single tops.
The $31 level certainly isn’t the first time Cisco has formed a multiple top pattern in recent years. Between March 2015 and June 2016, Cisco peaked in the $27.70-$28.70 range no less than six different times before finally breaking out to new highs in late 2016. Traders that used the $28 region as a sell point were rewarded during that 15-month stretch. Cisco retreated from $28 to the $24-25 area over and over again, providing plenty of profits for opportunistic traders.
Now, Cisco may have found a new extended trading range while the stock consolidates ahead of its next leg up.
The first level to watch is the resistance level itself. If Cisco makes a meaningful move to new multi-year highs above $32, it may be back on its way to its Dot Com Bubble highs around $60.
However, as long as it stays below $32, the stock will likely continue to find support in the $29-30 range. Since August, Cisco has bounced off of that level on five separate occasions.
It’s certainly no coincidence that its current support level was its previous resistance level. For Cisco bulls, the only redeeming factor in the stock building strong resistance at $32 is that the level could potentially form an equally strong support in the future.
If Cisco happens to dip below $27.70, it could be a sign that Cisco’s bull run that started back in 2011 is finally over. The stocks next potential support could come at around the $22 level where it bounced during the August 2015 flash crash and the early 2016 market sell-off.
Disclosure: the author holds no position in the stocks mentioned.
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