WITH CISCO SYSTEMS

Cisco is attractive at current levels. Others think it's a buy way down in the low teens, and still others wouldn't touch it until the single digits. As always, two sides make a market, and nobody knows the future.

Like my well-pedigreed colleagues, I too have a price at which I'd like to buy Cisco: $81.82 a share. In fact, I would love Cisco at $81.82, its all-time high. I'd adore it. I'd be all over it.

Seem strange? Perhaps. After all, if Cisco ever got back up to the high it reached last March, plenty of people especially those sitting on losing positions would sell, anxious to recoup their losses or protect profits before the stock took another dive. It's what I hear when I talk to prospective clients about reallocating some of their assets away from tech. Everyone is waiting for a bounce.

That thinking is understandable, but flawed: The truth is that if the stock ever did rebound back to its old highs, it would be a signal to increase, not decrease, your exposure. It's a question of timing, and from baseball cards to Brocade Communications, trading is all in the timing.

"Timing the market" is usually shorthand for buying XYZ after it's plunged and hoping it immediately darts higher from that moment forth. The word for that isn't timing, but delusion. True market timing isn't a flawless passport to profit, but an intuitive and logical way to approach allocating your assets. This week I'll discuss timing in the market; next week, in your individual portfolio.

Among financial planners, market timing might as well be a four-letter word. They argue that it's a dangerous and fruitless endeavor, that the prudent and wise investor simply buys solid companies when they're cheap (read: weak) and holds onto them for the long term. And maybe that worked back in the 1950s when the market yielded 5% in dividends and traded at 10 times earnings. It's hard to make the same argument, however, with stocks like Cisco, which, despite its breathtaking fall, is still trading at a hefty premium to the market while paying no dividend.

Because you aren't getting paid to hold a stock, you've got to get paid through capital appreciation. Not just buying XYZ, but buying and selling XYZ at the right time. As I've written before, what moves Cisco, JDS Uniphase or any other stock higher is the liquidity situation for the company's shares. Stocks go up because there's more demand than supply at current prices, and that means there is, in fact, a "good" time to get in to or out of XYZ.

Regular readers know that I often talk about "listening" to the market. Simply put, this means that I am bullish on XYZ when the stock gives me reason to be bullish, not the analysts, the news or the latest talking head. Conversely, when XYZ falls from $100 to $25, chances are that it isn't because the stock is taking a breather on its way up to $300. A weak stock is weak for a reason. It doesn't always mean we know what the reason is, nor does it even matter what the reason is: The point is that the stock is moving.

Stocks aren't chaotic, and although it might seem like it, the Nasdaq didn't move from 5000 to 2000 in a day. The markets move as the seasons do, in observable and traceable trends. In short, there's a method to the madness. Let's say you were shipwrecked, "Cast Away"-style, on a remote island without any access to the outside world. Even if you didn't have a calendar, you would, after a time, get a sense of what season it was. You'd observe the slightly shorter amounts of sunlight or cooler temperatures. You'd watch the birds fly south for the winter. And while you might not be able to nail the exact day, eventually you'd begin to realize that summer was becoming fall. The colder and darker it got, the more evidence you'd have that, in fact, winter was coming. Prediction from observation. It's a guess...but not a gamble.

The same logic applies to the markets. It's called persistence of trend. A stock that has been strong for a period of time will tend to remain strong. Likewise, while there's no guarantee, weak stocks tend to remain weak.

So no matter what timeframe you are trading in, as a rule of thumb, the best time to buy a stock is when it's strong. Keep in mind that "strong" refers to a stock's price action. It's got nothing to do with the news, economic fundamentals or comments from the peanut gallery.

How do you know if a stock is strong? One of the easiest and most intuitive ways is to wait until it trades above a previous multiperiod high. I specify multiperiod because buying "the breakout" is a technique that can be utilized within all trading timeframes.

While scared money might cringe at buying the top, if a stock is revisiting a historical high especially a long-term historical high it's a reason for bullishness. Combined with good position size and order-placement technique, it's an ideal way to get in at the best possible time.

Consider this: In February of 1973, IBM traded at a split-adjusted price of $23 a share, just as equities began the worst bear market in history. And although you could have picked up Big Blue at the "bargain" price of $13 a share just one year later, it wouldn't have done you much good. As late as 1981, some eight years later, the stock still traded at a fraction of its early 1970s high. Some bargain!

The best, or at least the safest strategy, would have been to buy IBM as soon as it eclipsed its pre-bear-market high of $23, in December 1983. And while we can be certain investors were frightened buying the stock as it hit those 10-year highs, it proved an opportune moment to get in. IBM marched on to a 100% gain from those seemingly lofty levels.

What was the signal to buy IBM? It wasn't an analyst, or an overwhelmingly positive bit of corporate news, but the stock itself. When IBM was able to break out from the decade-long trading range, the stock was, in effect, "telling" us that it was ready to move even higher. Value-oriented fundamentalists hate this sort of analysis because it ignores all the actual economics going on within a company. Buy a stock when it's cheap, they cry, and wait around for the market to realize its error. Alas, those who've bought the dips on stocks like Cisco over the years have now come to realize that while markets are never wrong, opinions often are. When a stock is dropping, let it drop. It isn't your constitutional duty to stand between Cisco Systems and a new 52-week low.

To that end, those wishing to play Cisco from the long side might develop a trading plan more detailed than "buy and hope." To start off, wait for some strength. With ammo in short supply, you've only got a limited number of bullets. The price action should get bullish before you do. If the trade moves your way, stick with it. As long as you use proper diversification and risk-management techniques, you'll want to follow the trend, not fight it.

Past performance is no guarantee of future results, of course, but it's a pretty effective indicator. Buying the breakout isn't foolproof, and just because a stock makes multiperiod highs doesn't mean it can't fall just as fast. But generally speaking, you want to buy stocks that are getting up from the mat, not falling down onto it.

To everything there's a season. And when a stock is about to bloom, it will tell you. But as long as it's snowing outside or the rain is coming down, stay indoors. The yard will still be there next spring.

Jonathan Hoenig is portfolio manager at Capitalistpig Asset Management, a Chicago-based hedge fund. At the time of writing, Hoenig's fund was short shares of Cisco Systems.