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Cisco's miss has equity futures lower

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Yesterday after the closing bell, Cisco Systems (NASDAQ:CSCO) reported earnings of 18 cents per share on revenue of $6.75 billion, compared with the average analyst estimates compiled by First Call/Thompson of 19 cents on revenue of $7.2 billion. This marks the first estimate CSCO has missed since July 1994. Yesterday, shares of CSCO finished the session at $35.75 and are trading in the pre-market near $31.75. Any trading below $31.93 would be a new 52-week low for the technology bellwether.

Stock futures lower

Currently we are seeing S&P futures lower by 6, NASDAQ futures are off 55 and Dow futures are down 20. S&P 500 fair value for today is $6.71 with buy programs set at $8.50 and selling at $5.00.

Watch the Networking Index Closely

This morning and during today's trading, traders might want to keep an eye on the Networking Index (NWX.X). The index does not trade options, but I feel a key level to be watching today is the 700 level. This may present the trader who's done some homework the chance to play a short-term bounce in this index. The "bad news it out" and "everybody's favorite" has disappointed; this may be a good time for a rally.

Networking Index Supply/Demand Chart - 20-point box

On Monday, the NWX.X traded as low as 748 and that triggered a sell signal in the index at the lower part of an upward channel that was developing on our supply/demand chart. For the first time in over three months, this index had given two buy signals (one at 780 and another at 820) before this index ran directly into our bearish resistance line and turned lower. There's an "old saying" in point and figure charting that says... "the first sell signal in an upward trend is a buying opportunity." I'd be watching the 700 level over the next couple of sessions and begin looking for a short-term tradable bounce near that level. Bearish traders that may have held some shorts/puts overnight might want to watch the 700 level too as a place to lock in some nice profits. Bullish traders should NOT get overly aggressive with their buying. Instead, find a stock or two with a networking theme (CSCO, COMS, CS, EXTR, JNPR, FDRY, RBAK) and identify a levels where you feel there should be support. If the stock looks like it's starting to find support at that level then ease in with a small position. Once you start getting some success, then start picking away at others. Don't forget to take profits if you get a bounce!

Yesterday at 03:30!

Don't forget to use your retracement brackets like we did yesterday on the NWX.X. Be patient and let the trade come to you and wait for some sign of stability before entering a bullish trade. If you're trading off of a 10-minute chart, wait for 4 or 5 intervals to hold a level and begin making a higher interval high. For example... if the NWX traded between 700 and 710 for forty-minutes, then trades 702 to 712, that may be the go ahead to buy one stock in a networking related stock. If the index were to then trade at 698, that would be alert to weakness in the group and you can trade accordingly!

Don't forget your other indicators!

Don't make the mistake of getting "so focused" on a particular stock or index that you don't make other observations! Watch bond yields (TNX.X), (TYX.X) and (FVX.X). Watch Gold/Silver Index (XAU.X), the Market Volatility Index (VIX.X) and other broader market indicators.

Jeff Bailey
Staff Analyst

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