Computer networking company Cisco Systems Inc., citing strong sales of its routers, set-top boxes and other products, reported higher-than-expected earnings on Wednesday.Cisco (CSCO) was at $34 two days ago. After blowout earnings it is now down to $30.00 or so after hours. Clearly Cisco was priced for perfection. It seems someone "thought" they knew what was going to happen tonight.
Cisco said its latest quarterly net income was $2.2 billion, or 35 cents a share, an increase of 37 percent from a year ago. Excluding certain charges, the company reported a profit of 40 cents a share; analysts were expecting Cisco to report 36 cents per share on that basis.
Chambers said he expects overall economic conditions to cool Cisco's U.S. enterprise division, which sells to businesses. For example, Cisco saw a dramatic decrease in orders to its financial services customers, he said, and similar softness in orders from the automotive sector.
Speculators have been buying calls like mad.
- The CBOE volume of calls traded today at strike $35.00 was 28,165 as compared to 1,044 puts.
- The CBOE volume of calls traded today at strike $32.50 was 14,583 as compared to 12,734 puts.
click on chart for sharper image
The Open Interest in calls dwarfs PUTs. I have seen this pattern with Cicso more than any other stock. People think they know something (in this case strong earnings), but that knowledge is fool's gold when the stock reacts the opposite direction.
At some point we are going to see the same type reaction in Google (GOOG), Research in Motion (RIMM), Amazon (AMZN) and a bunch of other bloated issues as well. All of those issues are overvalued by any reasonable measure of valuation.
Cisco saw a dramatic decrease in orders to its financial services customers, Chambers said, and similar softness in orders from the automotive sector.
Think that bodes well for Capex Spending? Hiring plans? Think again.
The "safety of tech" as a place to hide from the bombardment in the financial sector looks like it is now being called into question. Futures are down sharply on the news. What's different about this decline vs. the mid-summer decline is that bullish sentiment remains strong. This makes for a very dangerous combination.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com
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