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Strong Cisco Doesn't Allay Correction Worries

The outlook from Cisco , the largest maker of networking equipment, is considered a barometer for the whole tech industry, even the whole economy. But no matter how optimistic CEO John Chambers was — saying capital spending was “very strong” — traders in the trenches are not convinced a correction can be avoided here.

Before Thursday’s open, the S&P 500 stood about 5 percent off its high reached on Jan. 19, having rebounded from its lowest point reached last week, which put the index down 7 percent from the high. A 10-percent drop is considered an official ‘correction’ on the Street.

Today’s bearishness is driven by a combination of chart analysis, Greece default fears, a jobs report looming this Friday … and believe it or not, a bad omen surrounding the sale of a sculpture made in 1960 by a Swiss modern master.

First let’s start with the charts. While Chambers spins an optimistic tale on the conference call, the charts may be telling the real story about the company and its customers.

"It’s an impressive report, but you gotta set the emotions aside,” according to Todd Gordon, technical analyst for Forex.com. The stock has fallen below its 50-day moving average — a widely-followed metric by chart experts — and should face heavy resistance to get over that level sitting around $24, according to Gordon. Without that break above, Cisco may return to its downtrend.

Take the bellwether for our financial system: Goldman Sachs. The stock rebounded strongly off the $160 level multiple times over the last 3 months as buyers bargain shopped. But they disappeared after the bank’s earnings report last month.

“I have yet to see people in the options market come in and commit to the long side after that break below $160 and that troubles me,” said Pete Najarian, co-founder of OptionMonster.com and Fast Money trader.

And then there is Greece. “We expect that over the next several weeks more revelations will come from Greece” about the severity of the European Union member’s ability to pay back its debt, said Brian Kelly, President of Kanundrum Capital.

In market history, sometimes the final nail in a correction come from the strangest of places, with the net effect of investors around the world taking off risk, even without a direct connection to their trades. In this case, Portugal could push us over the falls as they are next in line for a EU bailout following Greece.

As for Friday’s big employment report, the larger-than-expected jump in weekly jobless claims today signals that this economy is still not growing fast enough to create jobs and sets the market up for yet another disappointment Friday.

Last but not least, Sotheby’s yesterday sold a 1960 sculpture by Alberto Giacometti for $104.3 million, an all-time record price for the art world. The sale of the bronze “Walking Man I” is just the kind of frothy transaction that takes place at the top of a market, when an abnormal recovery in wealth spurs an extravagant purchase. Traders are thinking its best to act like this sculpture and start walking away from this market.

For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.

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