The Answer to the Cisco Kid’s Dilemma

If you are wondering how a dead, mega cap old tech firm like Cisco can sell off 10% after earnings with in-line numbers, look no further than the daily chart, below.

Here were have yet another example of a remarkably complacent uptrend just waiting to be snapped off. Note that Cisco has not come within spitting distance of its 200-day moving average (yellow line) since November 2012. A precise test was not needed, but at least something closer to it would have been healthier.

More recently, the May earnings gap higher continued to push up into oblivion, without coming anywhere close to even the 50-day moving average (darker blue line). Even though longs must have felt a sense of grandeur about always winning after each slight pullback, the risk-to-reward ratio was terrible, and now the tide has likely turned. This analysis should sound familiar from me, as permabulls in BRK.B DIS JNJ MA UNP V (incidentally, I am long a few of those names in my long-term portfolio, trimming around my core positions in those parabolic moves) could easily meet the same fate, even if earnings is not the excuse to sell-off. In my view, a catalyst is not needed for these stretched rubber bands to snap, but rather an excuse.

I would now be looking at Cisco as a short into weak bounces until we do, in fact, see a test of the 200-day.

_________________________________________