Cisco Turns Weak on Losing Legal Battle Against Arista

Cisco Turns Weak on Losing Legal Battle Against Arista

Considering the lacklustre second-quarter earnings guidance given by the networking hardware and telecommunications equipment manufacturer Cisco Systems Inc (NASDAQ: CSCO), on November 20th, we had recommended investing in a put option with a target price greater than $29. The stock fell to a low of $29.12 on the last day of November. Since December 1st, the stock had appreciated to a high of $32. However, as explained below, the stock has become a subject of negative talk in the recent days due to which we anticipate a correction.

Last week, Cisco’s spokesperson confirmed to Venture Beat that the company is officially winding down the $1 billion ‘Intercloud’ project. Cisco also stated that the existing apps and data of enterprises would be shifted to another cloud service provider. Industry experts believe that the shift would be made to Amazon, which offers more features than any other competitor.

More worrisome is the fact that cloud service providers such as Microsoft, Google, and Amazon have considerably reduced the use of Cisco’s gear and are shifting to a new range of networks, which are dependent on advanced software rather than expensive hardware. Facebook, on its part, continues to develop newer versions of networking hardware and offers them for free to potential customers.

Cisco also had a bad day in the court last week when a California jury relieved the computer networking company Arista from paying $335 million in damages demanded by Cisco. The company sued Arista for allegedly copying its Command Line Interface (CLI). Arista argued that it is a widely used feature and there is nothing unfair about it.
Last week, Vetr analysts lowered the stock’s rating from “strong buy” to “buy” rating. Earlier on November 30th, analysts at Zacks research downgraded the stock’s rating from “buy” to “hold”.

Technically, money is flowing out of the stock as revealed by the Chaikin money flow indicator. The MACD indicator, with a negative reading, reflects the underlying weakness in the stock. The stock also faces minor resistance at 30.60 levels. Thus, we can expect the share price to undergo a further correction.

Cisco - Technical Analysis - 20th December 2016

An investment in a low or below contract would enable a trader to benefit from the forecasted fall in the share price. The suggested trade should be taken only if Cisco trades above $30.50 in the equity market (as shown on the binary trader’s platform). In addition, the low contract should remain valid for a period of one week.

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