Cisco - Histogram divergencesCisco has a very nice pattern in price action with lower lows, followed by lowers highs. The start of 2014 broke this pattern, turning the pattern to higher high - higher low. Last month there was some indecision, price going sideways, drawing a double top, then rejected it at the neckline. Currently, Cisco restested the double top neckline, and rejected it again. This is a nice pattern, especially if it happens at a fib level, and if it comes with a divergence and a candlestick pattern, in this case bullish engulfing.
Let's take a closer look at the MACD histogram. I took the lines out so the patterns are more visible. I also changed the values, making it more sensitive so the divergences will be even more clear. I circled two identical patterns, first in september - october and the second january - march :
1) Bears come in very strongly
2) Bulls come in strongly
3) Bears come to power again, still strong, but weaker than the first time. We have a bullish divergence, but the bear power is still strong and the price doesn't go up so much.
4) Then bulls come in play again and them too are weaker this time, but this isn't important in the pattern.
5) Finally, for the third time bears come in play, with a very weak performance. The power between the bear power is obvious, hence the bullish divergence.
My stop is under the 61.8% fib retracement, around 21.20$ and my first target is at the previous high, near the round level of 23$. Risk/reward ratio is 3.
As I said on the chart, the weekly picture doesn't look good, so I preffer being cautious by taking a smaller position than usual.
