Shares of technology solutions giant International Business Machines Corp. (NYSE:IBM) dropped a little after the company’s recent first-quarter earnings report. However, shares remain very constructively positioned through a multimonth lens, providing clearly defined risk for anyone wishing to trade IBM stock.
Specifically, for Q1 2015, IBM came in with earnings per share of $2.91, up 9% year-over-year and 2 cents better than analyst estimates. Revenue came in at $19.59 billion, below analyst consensus and flat versus the same period a year ago. Revenues for cloud services — a high-growth area and focus for many analysts — grew more than 75% year-over-year.
Looking ahead, IBM affirmed its outlook, and the net takeaway for investors was thus fairly neutral overall … which also was confirmed by the way IBM stock traded after the results.
As a group, stocks of the large and heavy ‘old tech’ companies such as IBM, Microsoft Corporation (NASDAQ:MSFT), Intel Corporation (NASDAQ:INTC) and many more have had a tough going year-to-date, but many of them have since lifted and wiggled themselves into much more promising spots.
IBM Stock Charts
When looking at shares of IBM through a longer-term lens, we see that the stock has been under consistent pressure since topping out in spring 2013. The late 2014/early 2015 weakness brought the stock down to a support area from 2011 (red horizontal line) and in fact marginally undercut it.
What sticks out most about this multiyear view, however, is the current tightness of the Bollinger Bands (blue lines), which the stock hasn’t seen since 2010.
The tight bands are just a reflection of the consolidation phase/potential bottom-building phase that the stock has been in since last autumn. Tight Bollinger bands like these always lead to a better directional move; it’s merely a question of timing.
On the daily chart, zooming in on the recent multimonth consolidation phase, we see that IBM stock had plenty of opportunities to break lower, but each time it tried, buyers came to the rescue with bullish reversals. The consolidation phase came after IBM shares dropped sharply last October 20 following an earnings report.
The area around $165 has since become a very well-defined line of resistance, which once overcome for more than one trading day could lead to a better trending move that ultimately may fill its down gap from last October (blue box) all the way up into the low $180s.
On Monday, IBM stock pushed past the horizontal resistance around $165, but with the marginal post-earnings weakness from Tuesday has slipped back below this level.
Active investors could look to buy the stock on the next attempt to overcome $165, with an initial price target at $175.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
