Cisco Systems Lifts Into Dow Leadership

Cisco Systems, Inc. (CSCO) has lifted to the top of the Dow component performance list in an amazing turnaround, following many years of underperformance, and it may soon set its sights on March 2000 internet bubble high at $82.00. This quiet but persistent surge into market leadership has lifted shares of the old-school tech giant nearly 28% so far in 2019, while perfect positioning at an 18-year high outshines all five FAANG stocks and the majority of tech's other household names.

Cisco stock is now trading about 27 points below 2000's all-time high after clearing the .618 Fibonacci retracement level of the three-year decline that started when the internet bubble burst. The next harmonic resistance level lies at the .786 retracement at $65, indicating that there's still plenty of time to jump on board this slow-moving but tenacious uptrend. Better yet, current price structure predicts that the rally will enter a more vertical trajectory after that resistance level is mounted.

The company came public at a split-adjusted $0.08 in February 1990 and entered a strong uptrend eight months later, splitting an incredible eight times during an ascent that continued into the March 2000 high. Cisco pulled back with other tech stocks when the bubble burst, carving a double top pattern that broke to the downside at year end, generating a brutal downtrend that initially found support in the mid-teens in April 2001. It broke that level in the third quarter of 2002, entering a final selling wave that posted a five-year low in the single digits in October.

That marked the lowest low in the past 16 years, ahead of a proportional retracement that reversed near $30 in 2004. Resistance at that level stalled further progress until a 2007 cup and handle breakout failed to attract significant buying interest, ending less than five points above the prior high in November. The subsequent downturn accelerated into a six-year low following the 2008 economic collapse.

A bounce into the new decade stalled at a lower high, yielding a 2011 test at support that completed a double bottom reversal, ahead of a slow-moving uptrend that finally reached the 2010 high in the first quarter of 2017. The stock broke out in November, lifted to a 16-year high in the mid-$40s in March 2018 and cleared resistance in February 2019. It mounted the .618 retracement level one month later, exhibiting unusual strength.

The monthly stochastics oscillator entered a buy cycle well above the oversold level in January 2019 and has now surged into the most overbought technical reading in the stock's 29-year public history. This is extremely bullish at this point because strongly trending securities can stick like glue to overbought and oversold levels. However, market technicians will be keeping a close eye on the indicator, watching for any signs of a bearish crossover.

The stock carved a jagged corrective pattern in 2018, showing little evidence of the impending bull run. It fell to a 10-month low in December, breaking support at the 200-day exponential moving average (EMA) at $45 and remounting that level in January, setting off a preliminary buying signal. The uptrend made rapid progress through the March and October highs, but it attracted little media attention, keeping weak hands on the sidelines into the second quarter.

The on-balance volume (OBV) accumulation-distribution indicator is waving a red flag despite seemingly bulletproof price action. A strong accumulation wave ended at a new high in March 2018, giving way to profit taking that continued into year end. Buying pressure in 2019 stalled and reversed at the prior high (red line), marking a potential intermediate top. A breakdown through harmonic support at $53.72 could be significant if this weakness continues, generating continued downside into the 50-day EMA.

Cisco Systems stock has ascended into the top slot in Dow component performance and could finally complete a long-awaited round trip into March 2000's all-time high.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.