Market crashes and economic crises come and go and the markets eventually recover. The dot-com bubble burst some 16 years ago, but NASDAQ is currently trading at all-time highs. The Great Recession of 2007-2009 left the financial world in ruins, but the Dow Jones Industrial Average is now flying above 18 550. And while the broad market survives, some companies, unfortunately, do not. Enron, WorldCom and Lehman Brothers, just to name a few. Cisco, on the other hand, is one of the companies, which could brag about surviving through the last two major stock market crashes. The next chart, however, suggests it is no time for bragging.
The weekly chart of Cisco Systems Inc. shares shows the stock still has not managed to recover from the Dot-com crash in 2000-2002. Currently trading slightly above 31 dollars a share, it is not even close to the pre-crash levels. But what is even more worrying is the fact that the entire price development since the top in March, 2000, looks like an almost complete 5-3 wave cycle. A five-wave impulse from 82.00 all the way down to 8.12 in October, 2002, followed by a three-wave W-X-Y correction, whose wave Y is still in progress. According to the Elliott Wave Principle, impulses show the direction of the larger trend. As soon as the following correction is over, the trend resumes in the direction of the five-wave sequence. In Cisco’s case this means that once wave Y end, another significant sell-off is likely. Correction usually develop between the parallel lines of a corrective channel. We believe Cisco stock would probably reach the upper line of the above-shown channel, around 40 dollars a share. Despite the extreme optimism this new multi-year high would arouse in investors, owning Cisco shares could turn into a costly mistake, because once the downtrend resumes, prices below 8 dollars a share should not be surprising. When such low levels are reached, a company’s very existence is under threat. Only time will tell if Cisco is going to survive through the next market meltdown, but it definitely does not look like your best long-term investment right now.
