For investors who use charts and price action to guide their decisions, a methodical way to find possible trades is important. One technique involves checking the market for stocks that are both technically sound and creating a constructive price pattern, a pairing that can indicate a possible breakout. This approach centers on two key proprietary metrics from ChartMill: the Technical Rating, which measures the general condition and trend of a stock, and the Setup Quality Rating, which judges how tight and clear its recent consolidation has become. By looking for stocks with high scores in both areas, traders try to find chances in leading stocks that are resting before their next possible advance. A recent check using this method has identified Cisco Systems Inc (NASDAQ:CSCO) as a candidate for more examination.
Examining the Technical Base
The first part of this breakout approach is a stock's basic technical condition, measured by ChartMill's Technical Rating. A high rating implies a stock is in a clear uptrend and is doing better than the wider market, which is needed for a breakout to have lasting force. Cisco's present Technical Rating of 7 out of 10 puts it clearly in positive ground, showing a technically good base.
A closer look at the full technical report shows several supporting details:
- Trend Structure: The long-term trend for CSCO is labeled positive, while the short-term trend is neutral. This arrangement often comes before a resumption of the longer-term uptrend once the short-term pause ends.
- Relative Strength: Over the last year, CSCO has performed better than 79% of all stocks. This strong relative performance is a sign of market leadership, an important quality for good breakout candidates.
- Position vs. Averages: The stock is priced above its important rising moving averages (SMA50, SMA100, and SMA200), which usually serve as dynamic support levels in a good uptrend.
This solid technical setting is exactly what the screening method looks for. A stock with a poor or falling trend is less probable to create a dependable breakout, making a good Technical Rating a key filter.
Judging the Setup Quality
While technical condition shows which stock to watch, the Setup Quality Rating deals with when to think about an entry. A high score shows the stock is in a period of consolidation, where volatility lessens and the price moves in a smaller range. This creates a specific support level and a clear breakout point, allowing for exact trade planning with controlled risk. Cisco receives a Setup Rating of 8, indicating a very good pattern formation.
The technical report notes the constructive price action:
- Consolidation Zone: Over the past month, CSCO has moved between about $75.20 and $81.17. It is now placed in the middle of this range, having recently moved back from the upper limit.
- Specific Support and Resistance: The analysis notes a clear support area between $76.65 and $77.54, made by a mix of trendlines. Just above, a resistance area is between $77.69 and $78.52. This close space between support and resistance is typical of a high-grade setup, preparing for a clear move.
- Automatic Trade Suggestion: Based on this pattern, the report describes a possible trading plan. A move above the resistance at $78.53 could be used as an entry signal, with a stop-loss set below the support area at $76.64. This would keep the theoretical risk on the trade to about 2.4%.
This organized setting is what traders seek. The high Setup Rating confirms that CSCO is not overbought but is instead moving within a set range, giving a logical entry point if buyers take charge again.
Summary and Following Actions
The pairing of Cisco's good Technical Rating (7) and very good Setup Quality (8) makes it a notable result from the Technical Breakout screen. The stock shows the preferred profile: a long-term leader in an uptrend that is now resting in a clear consolidation, offering a defined level for a possible new advance. For technical investors, this matches a classic "continuation pattern" setup.
It is vital to recall that a high-grade setup does not assure a winning breakout. Prices must still move with strength above the noted resistance level. As usual, careful risk management, including using stop-loss orders, is necessary.
Find New Chances Daily The market always shows new setups. You can use the same Technical Breakout screen that found CSCO to find other possible chances. View the latest breakout setups here.
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Disclaimer: This article is for information only and does not form investment advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on technical metrics and past data, which are not promises of future results. All trading and investment choices involve risk, including the possible loss of principal. You should do your own research and talk with a qualified financial advisor before making any investment choices.