Wednesday’s close suggested more weakness for today and futures confirmed our thoughts when we woke up this morning.
We knew coming into the week that Cisco Systems (CSCO, $24.82, down $1.56) held the market in its hands and that a breakout or breakdown could occur depending on what the company reported on earnings. We have followed the stock for decades and the company’s CEO, John Chambers, has a history of beating estimates by a penny.
He also has a history of sandbagging numbers if he feels shares have gotten ahead of themselves. The stock came into the week up over 30% for the year and we caught a little of that action for our Weekly Wrap in May when we suggested going long when shares were just above $20.
We were out 2 weeks later when shares made a run at $24 for a 14% profit and we have been wanting to get back into the stock as we said then shares could challenge $30 over the next 6-12 months.
Cisco’s numbers were fine across the board and we mentioned this morning the dividend yield could jump back above 3% making it an attractive investment. Although we could take a stab here at these levels and write deep in-the-money call to limit our downside risk but we would rather wait to see if shares come down to $23-$22. If there is a bottom at current levels, we can wait for a run back above $25-$26 to get in. (continued…)