In a bull market seemingly made up of influential technology stocks, not all companies of that caliber have enjoyed 2020’s new socially distanced normal. Cisco Systems (NASDAQ:CSCO) and its shareholders can attest as much. But has the time finally come to buy Cisco stock? Let’s examine what’s happening off and on the price chart, then offer a risk-adjusted determination in alignment with those findings.
Despite September’s market correction, it’s not exactly a secret the large-cap, tech-heavy Nasdaq Composite index has been a great spot to invest this year. The leadership of course has been the byproduct of muscular rallies in trillion-dollar-plus outfits and rising growth stock stars. Apple (NASDAQ:AAPL). Microsoft (NASDAQ:MSFT). Amazon (NASDAQ:AMZN) and others, as well as dizzyingly powerful gains from growth juggernauts such as Tesla (NASDAQ:TSLA) and Zoom Video (NASDAQ:ZM) are the much lauded suspects.
It is what it is. There’s also no arguing those companies’ products and services, now more than ever, have proven essential amid the novel coronavirus pandemic. Well, maybe not Tesla. Still, it would be foolhardy for investors to think they can simply throw a dart at the wall covered with blue-chip tech stocks and expect to hit a bullseye.
Not the End of Days for Cisco Stock
Cisco investors are painfully aware of this fact. On the year — and in the face of the Nasdaq being up nearly 24% or against AAPL stock’s burly 55% return — CSCO shares are down roughly 5%. The other truth facing Cisco stock holders are the company’s networking and security services haven’t proven wholly critical amid the pandemic. Last month’s sales warning is certain evidence of that.
To be fair, it’s not the end of days for Cisco stock. The tech giant remains a blue-chip in every sense with massive cash reserves, a healthy dividend, as well as the ability to regroup and grow its brand once more. Still, if there’s another coronavirus wave to hit anywhere, CSCO’s bearish trend shows one already in motion and nowhere near yet finished.
Seeking Transparency in Price Chart
Click to Enlarge
Source: Charts by TradingView
Technically, I’ve been upbeat on the broader market and in particular large-cap tech since Friday. That day the Nasdaq Composite staged what I’m interpreting as a ‘stealth’ bullish follow-through day or FTD. I may be alone in that optimism.
What I view as increasingly hard-to-quantify volume confirmation for a FTD event due to fragmented and less-than-transparent third markets is still held at face value elsewhere. I’m referring to Investor’s Business Daily. And apparently that secondary indication was missing from Friday’s price action.
Still and despite my broader enthusiasm that the Nasdaq Composite has in fact bottomed, in an investing game where stocks also don’t always maintain strong correlations, buying into Cisco stock’s relative and absolute price weakness doesn’t sense.
Profit Potential in a Short
Plain and simple, there’s insufficient evidence to suggest CSCO stock’s bearish cycle is complete. Moreover, given today’s weak stochastic positioning and a bottom which may not come into play until shares challenge key support from $27.50 – $33, it may prove an opportune time to place a bearish wager in Cisco.
Bottom-line, if our bearish outlook on shares is correct or simply a trend in motion which remains in motion, there stands to be solid profit potential for investors positioning short in Cisco. As much, a well-structured bearish December $35 / $30 put spread in CSCO which could also serve as a portfolio hedge, looks very approachable.
On the date of publication, Chris Tyler did not hold, directly or indirectly, positions in any of the securities mentioned in this article.
The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
Gallery: 10 Blue-Chip Stocks Ideal for Any Investor (InvestorPlace)
Blue-Chip Stocks: Coca-Cola (KO)
Home Depot (HD)
Procter & Gamble (PG)
Johnson & Johnson (JNJ)
Altria Group (MO)