Key Takeaways
- Shares in Cisco Systems jumped ahead of Thursday’s opening bell after the technology and networking company released earnings that topped Wall Street’s estimates and announced that it’s cutting 7% of its global workforce.
- The share price broke below the neckline of a head and shoulders pattern earlier this month, but lackluster trading volumes indicate a lack of conviction behind the move.
- Cisco shares could run into overhead resistance at key chart levels including $48.50, $50, $52.50, and $58.
Shares in Cisco Systems (CSCO) jumped in premarket trading Thursday after the technology and networking company released earnings that topped Wall Street’s estimates and announced that it’s cutting 7% of its global workforce.
The tech giant, which has seen its shares slump by around 10% since the start of the year through Wednesday’s close, also said it plans to invest in key growth opportunities as it looks to diversify its revenue. In recent quarters, net sales in the company’s core networking business have remained under pressure as enterprise customers continue to move their computing operations to the cloud.
Cisco shares were up 6% at $48.17 about two hours before the opening bell.
Below, we take a close look at Cisco’s chart and use technical analysis to identify key post-earnings price levels.
Shares Carve Out Head and Shoulders Pattern
Cisco shares carved out a head and shoulders formation between April 2023 and January this year, a chart pattern that signals a potential market top. Moreover, the 50-day moving average (MA) crossed below the 200-day MA in December to form a bearish death cross, another chart alert that warns of lower prices.
Although the stock broke below the pattern’s neckline earlier this month, trading volumes have remained lackluster, suggesting a lack of conviction behind the move lower. Indeed, Thursday’s projected open above the neckline after the company’s better-than-expected earnings has the potential to shift market sentiment back in favor of the bulls.
Watch These Key Resistance Levels
Following Cisco’s post-earnings jump, investors should monitor four key price levels where the shares could encounter overhead selling pressure amid a reversal attempt.
Initially, the price could run into resistance around $48.50 just below the downward sloping 200-day MA, a location on the chart where sellers may look for exit points near a multi-month downtrend line extending back to the September 2023 swing high, which also marks the “head” of the head and shoulders pattern.
A move higher from here could see the shares climb to $50, where they would likely encounter selling pressure near an important horizontal line joining a range of similar trading levels between November 2022 and May this year.
Further buying may continue a move up to $52.50, a region where investors could be happy to sell shares near the chart formation’s two closely aligned shoulders that formed in April last year and January 2024.
Finally, a major upside reversal could test the top of the head and shoulders pattern near $58. It’s also worth pointing out that a close above this key level would invalidate the formation. Interestingly, a bars patterns, which extracts the stock’s move higher from October to November 2022 and applies it to this month’s recent lows, projects a price target around this same area.
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As of the date this article was written, the author does not own any of the above securities.