Confirmed 'Buy' Signal for CSCO

July 27^th, 2021

Confirmed ‘Buy’ Signal for CSCO

Dear Reader,

Yesterday, we looked at a Daily Price Chart of Chipotle Mexican Grill Inc. noting that the stock had been making a series of 52-Week Highs since late July.

For today’s Trade of the Day e-letter we will be looking at a daily price chart for Cisco Systems, Inc. stock symbol: CSCO.

Before breaking down CSCO’s daily chart let’s first review what products and services the company offers.

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. It provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products that are designed to work together to deliver networking capabilities, and transport and/or store data.

Now, let’s begin to break down the Daily Price chart for CSCO stock.

Below is a Daily Price chart with the 50-Day EMA and 100-Day EMA for CSCO.

50-Day EMA and 100-Day EMA ‘Buy’ Signal

The 50-Day Exponential Moving Average (EMA) and 100-Day EMA are moving average indicator lines that can provide buy and sell signals when used together. When the shorter-term 50-Day EMA crosses above or below the longer-term 100-Day EMA, this provides either a buy or sell signal depending on which direction the stock price is moving.

50-Day EMA line Above 100-Day EMA = Price Uptrend = Buy signal
50 Day EMA line Below 100-Day EMA = Price Downtrend = Sell signal

When the 50-Day EMA (blue line) crosses above the 100-Day EMA (red line) this indicates that the stock’s buying pressure has begun to outweigh the selling pressure signaling a ‘buy’ signal. When the 50-Day EMA crosses below the 100-Day EMA this indicates that the selling pressure has begun to outweigh the buying pressure signaling a ‘sell’ signal.

Buy CSCO Stock

As the chart shows, on December 11^th, 2020, the CSCO 50-Day EMA, crossed above the 100-Day EMA.

This crossover indicated the buying pressure for CSCO stock exceeded the selling pressure. For this kind of crossover to occur, a stock has to be in a strong bullish trend.

Now, as you can see, the 50-Day EMA is still above the 100-Day EMA meaning the ‘buy’ signal is still in play.

As long as the 50-Day EMA remains above the 100-Day EMA, the stock is more likely to keep trading at new highs and should be purchased.

Our initial price target for CSCO stock is 58.50 per share.

93.3% Profit Potential for CSCO Option

Now, since CSCO’s 50-Day EMA is trading above the 100-Day EMA this means the stock’s bullish rally will likely continue. Let’s use the Hughes Optioneering calculator to look at the potential returns for a CSCO call option purchase.

The Call Option Calculator will calculate the profit/loss potential for a call option trade based on the price change of the underlying stock/ETF at option expiration in this example from a flat CSCO price to a 12.5% increase.

The Optioneering Team uses the 1% Rule to select an option strike price with a higher percentage of winning trades. In the following CSCO option example, we used the 1% Rule to select the CSCO option strike price but out of fairness to our paid option service subscribers we don’t list the strike price used in the profit/loss calculation.

Trade with Higher Accuracy

When you use the 1% Rule to select an CSCO in-the-money option strike price, CSCO stock only has to increase 1% for the option to breakeven and start profiting! Remember, if you purchase an at-the-money or out-of-the-money call option and the underlying stock closes flat at option expiration it will result in a 100% loss for your option trade! In this example, if CSCO stock is flat at 55.47 at option expiration, it will only result in a 4.0% loss for the CSCO option compared to a 100% loss for an at-the-money or out-of-the-money call option.

Using the 1% Rule to select an option strike price will result in a higher percentage of winning trades compared to at-the-money or out-of-the-money call options. This higher accuracy can give you the discipline needed to become a successful option trader and can help avoid 100% losses when trading options.

The goal of this example is to demonstrate the powerful profit potential available from trading options compared to stocks.

The prices and returns represented below were calculated based on the current stock and option pricing for CSCO on 7/26/2021 before commissions.

When you purchase a call option, there is no limit on the profit potential of the call if the underlying stock continues to move up in price.

For this specific call option, the calculator analysis below reveals if CSCO stock increases 5.0% at option expiration to 58.24 (circled), the call option would make 44.6% before commission.

If CSCO stock increases 10.0% at option expiration to 61.02 (circled), the call option would make 93.3% before commission and outperform the stock return more than 9 to 1.

The leverage provided by call options allows you to maximize potential returns on bullish stocks.

The Hughes Optioneering Team is here to help you identify winning trades just like this one.

Interested in accessing the Optioneering Calculators? Join one of Chuck's Trading Services for unlimited access! The Optioneering Team has option calculators for six different option strategies that allow you to calculate the profit potential for an option trade before you take the trade.

Special Offer for TOD Members!

Do you want to start receiving hand-picked trades from 10-Time Trading Champion, Chuck Hughes?

As a Trade of the Day subscriber, Chuck is offering you a special discount on his Weekly Option Alert Trading Service.

Just call Brad at 1-866-661-5664 or 1-310-647-5664 to join and use the code "Optioneering VIP" to receive special pricing!

Wishing You the Best in Investing Success,

Chuck Huges Signature

Chuck Hughes

Editor, Trade of the Day

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Confirmed 'Buy' Signal for CSCO

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