EOT Trade Alert – December 23, 2009

| December 23, 2009

December 23, 2009

Trade Alert:

   Buy CSCO April 2010 $24 Calls at $1.40 or better

Company Background:

Cisco Systems (CSCO) designs, manufactures, and sells IT networking and communications systems.  They also provide services the users of their products need to keep them running.

Short-Term Catalyst:

CSCO is an economically sensitive large cap stock.  Demand for Cisco’s products is improving as the economy gains steam.  But for some reason, management’s been slow to increase their earnings guidance.

I’m expecting strong demand and increasingly favorable economic conditions to lead to good things in CSCO’s immediate future.  Namely, I see upward revisions of the quarterly and full year earnings estimates coming soon.

Analysts are already jumping on board the CSCO train.  Three analysts are upgrading the stock and increasing their price target to around $30 to $31.

But for some reason, CSCO’s shares are lagging other technology companies.

Over the last week, the tech heavy NASDAQ and the Q’s have broken out to fresh year to date highs.  But CSCO is still well below the October high.

The technical indicators are telling me CSCO’s fortunes are about to change.

Right now there’s a long term uptrend in place since March and a short term down- trend since October.  The two trend lines are converging as shares consolidate in a tight range.

We’ll often see technical setups like this prior to a big breakout.  And since the longer trend is up, the odds are that the breakout will be to the upside.

The recent lack of price volatility as CSCO has consolidated has driven down the option premium to levels that look undervalued to me.

Let’s jump on board with CSCO before shares start moving higher.

Trade Details:

Underlying Stock Symbol: CSCO
Current Bid-Ask Price: $1.28 – $1.30
Option “Buy Up To” Price: $1.40
Break-Even On Stock At Expiration: $25.40
Maximum Risk Per Contract: $140

Exit Strategy:

CSCO is trading at $23.75 per share.  Resistance levels will be at $26 and again at $29.  Remember, we want this stock to move higher.  Support levels will be at $22.50 and $20.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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