Trade Cisco Looking Beyond Fundamental and Earnings

The major U.S. stock indices, including the S&P 500 (+1.2%), Nasdaq Composite (+1.4%), and Dow Jones Industrial Average (+0.8%), ended the day at or near record highs.

This positive momentum was largely in response to the April Consumer Price Index (CPI) data, which indicated a slight easing in inflation.

Yet, the consumer discretionary sector was the weakest performer, largely unchanged from the previous day, impacted by declines in Tesla and Amazon.com.

The company raised its full-year revenue forecast to between $53.6B and $53.8B, up from the previous $51.5B to $52.5B, surpassing analysts' projections.

Cisco's CFO Scott Herren highlighted the stabilization of demand and the strategic addition of Splunk to their product line as key growth catalysts. Meanwhile, competitors Juniper Networks (JNPR) and Arista Networks (ANET) experienced declines following the news.

But if we look at how Cisco trading volume was like after its earnings forecast, it does not seem to create high demand volume, so Cisco performance have nothing to do with fundamentals, investors would need to look beyond that.

Cisco's business is somewhat cyclical and tends to correlate with broad economic trends, particularly during periods of stability. Not surprisingly, the company has a five-year beta of 0.85, indicating a moderate level of correlation in line with major indexes.

However, the nature of the network solutions industry allows financial results to be somewhat forward-looking and thus disconnected from the economic activity of end consumers. Consequently, Cisco's performance significantly lags behind the S&P 500 over the past five years.

After the last earnings on 14 Feb 2024, we could see from the above chart that Cisco is trading sideways, and we could see Cisco form 2 Sell signal from the KDJ.

On the KDJ, we could see that J value went down which trigger a SELL, and the next BUY signal only appear on 29 Feb 2024.

If you have enter the BUY on 29 Feb, and manage to sell away on 11 March before we see Cisco start trading sideway for almost one month (11 Mar to 08 Apr).

There is a potential BUY signal around 08 April, and this shall be a short trade where you can sell within a week. But the next BUY opportunity only appear almost one month later on 03 May 2024.

So we have seen Cisco releasing their latest quarterly report, but will we be seeing another profit taking by traders and investors on 03 May?

So I personally would think that we look out for the next SELL signal, before we plan our entry.

If you follow what I am trying to show you, how Cisco stock price performance have nothing to do with its fundamental, but more on how investors perceive this stock.

So I feel that it is important we make use of what we know (e.g. technical indicators) to look for pattern on when buying happen, and when we expect selling to come on.

Appreciate if you could share your thoughts in the comment section whether you think Cisco would experience profit taking from investors and traders who has bought at previous BUY signal?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.