Bullish – CSCO – $47.43
The S&P 500 marched higher this week above its major $323 resistance level and is now within spitting distance of all-time highs of $339. With fixed income markets yielding closer to negative rates with positive correlations to equities, a retest of $339 is on the table, barring any major geopolitical events. Despite signs of exhaustion, negative divergences and narrowing market breadth, markets have largely ignored valuation metrics, economic indicators or fundamentals. This elevates the risks of the next pullback to be fast and violent, but does not signal a reversal in itself. Our base case for next week is that markets will continue to grind higher towards $339.
CSCO Trade Idea:
On CNBC’s OptionsAction show on Friday, Tony Zhang looked at CSCO and the upcoming earnings event next week. Making the backbone on the internet hardware network, CSCO benefits from the surge in bandwidth consumption and growth in cybersecurity business. With the poor relative performance to its sector but strong positive analyst revisions the past week, suggests a potential earnings surprise next week. Expecting CSCO to trade higher on earnings, Tony is buying a Sept $47.5/$52.5 Call Vertical @ $1.50 Debit. As of Friday’s close, these calls were trading for $1.57 Debit.
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