COTD Bullet Points:
- Cisco (CSCO) has just broken out above resistance that it has been stuck under for the past three months ahead of next month’s earnings.
- The chart pattern has played out multiple times in the past few years and has usually been followed by sizeable runs.
Chart of the Day:
Back in February, we noted a chart pattern over the past several years for Cisco (CSCO) where the stock has repeatedly broken out on its third test of resistance usually thanks to a positive reaction to its quarterly report. In the chart below, we show this pattern in addition to CSCO’s quarterly reports represented by the vertical lines. Only being in the first few days of earnings season, CSCO does not report for another month (August 14th), but this same pattern of a breakout on the third test of resistance is more or less playing out again now. After three months of being stuck under the $57 level, CSCO is now breaking out.
In late June, CSCO reached this resistance at the prior 2019 high from April. Without earnings acting as a catalyst as it has the past few times this pattern played out, the stock only briefly broke out intraday on June 21st but fell in the following days. This pullback from overbought levels brought CSCO down to support at the 50-DMA in the first days of July, where it made a higher low. From there, it has been rallying further and has broken out in the past week. Although it is now elevated at current levels, this breakout to 52-week highs has been a promising sign for the stock in the past.
While CSCO’s earnings report is still about a month away, the stock has consistently exceeded forecasts. The last time CSCO missed EPS or sales forecasts was back in 2013. Going back to the start of our data in 2001, it has beaten EPS estimates 93% of the time and sales estimates 89%. Additionally, it has only raised guidance around 10% of the time. Despite consistent beats, in aggregate, the full day price reaction has been positive a little less than half the time, averaging a one day gain of just 9 bps. Fortunately, for Q2 reports, performance is slightly better with the stock averaging a one-day gain of 1.05% with positive returns 53% of thr time.