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Cisco (CSCO) Shares Look Ready to Move Higher

Cisco (CSCO) Shares Look Ready to Move Higher

Shares of Cisco Systems (CSCO) look ripe for a rally based on a key chart pattern.

The pattern? A reverse head and shoulder pattern.

In a traditional head and shoulder pattern, two smaller peaks center around a larger one. Essentially, a company makes a new high, pulls back a bit, makes a higher high, pulls back a bit, but then fails to make a new high. It’s a sign that traders are overextended in the trade.

The reverse is exactly what it sounds like. A stock drops, moves higher before dropping further, but then sets a higher low.

That’s the pattern playing out in Cisco shares over the past few months.

The first shoulder started around October. The head hit near the end of the year. Finally, the recent retest of shares just went through. Once shares hit around $49, a price point on this type of chart known as the “neckline,” they’re likely to head higher.

Typically, after such a pattern, shares of a company could rise 10-15 percent in the next few months… possibly even higher in today’s markets.

Shares could go from their current price around $48 to their old 52-week highs of $56. That’s a distinct possibility with this type of pattern. If that happens, shares would gain over 16 percent in the next few months.

Based on this pattern, a trader could buy shares, and look for 15 percent capital gains in the next few months. They’d also collect a dividend payment or two of the company’s 2.9 percent annual dividend. That’s a great way for stock investors who don’t want to do any dividend trading to take advantage of this favorable chart.

With large potential upside in the next few months, however, an options trade like the July 2020 $55 call look more attractive. Trading for around $0.64, or just $64 per contract, a quick move back to all-time highs in the next few months could lead to a double or better.