International Business Machines Corp.: Plug Into IBM Stock

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Shares of technology company International Business Machines Corp. (NYSE:IBM) fell another 4% on Tuesday as the company’s downtrend since 2013 continued. With Tuesday’s drop, however, IBM stock is also finally coming into a better bigger-picture area of support — one that could offer active investors and traders a spot to play from the long side.

Beat the BellWhen IBM reported its latest quarterly results on Oct. 19, it was a whiff by most accounts. Earnings came to $3.34 per share, which did top estimates of $3.30, but revenues of $19.28 billion came in below expectations for $19.62 billion. Worse, that top line was lower for the 14th consecutive quarter, which the company partially blamed on strong-dollar headwinds.

On the outlook, IBM guided its full-year 2015 earnings to a range of $14.75 to $15.75 per share, compared to analyst estimates of roughly $15.68.

Some rumors have been circling around activist investors looking at IBM, but so far that has not helped the stock price. In fact, on Tuesday, news broke that the Securities and Exchange Commission is investigating how IBM accounts for revenue, which understandably was not well-received by investors.

IBM Stock Charts

Looking at IBM stock through the longer-term lens, we see that a major breakout past multiyear resistance occurred in the fall of 2010. This accelerated the stock higher to the tune of 60% over the ensuing two-and-a-half years. But by spring 2013, the bulls ran out of steam and the stock began top out and ultimately crumble.

With Tuesday’s drop, however, IBM stock has now entered a zone of support that lies between the 50% and 61.8% Fibonacci retracement lines of the entire rally off the late 2008 lows into the 2013 highs. In other words, IBM is getting very close to retesting its 2010 breakout area (i.e., the black horizontal line on the chart).

Specifically, this support zone spans from about $140 down to about $125 and offers a pretty interesting confluence area of support to initiate some medium-term long positions in the stock.

IBM stock chart weekly
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On the daily chart, we see that the price action in IBM stock since late September/early October has very much defied the broader market’s rally. The proverbial one-two punch was the 5.5% drop the trading day after the earnings report (Oct. 20), followed by the 4% drop yesterday on the back of the SEC investigation news.

From a momentum perspective, however, IBM stock is showing us some relative strength — the Relative Strength Index oscillator at the bottom of the chart bottomed in August and so far is still making higher lows. While this is no all-clear buy signal, if we combine this with the bigger -picture support area that shares are entering on the above longer-term chart, IBM stock is much closer to a buy than it has been in some time.

IBM stock chart daily
Click to Enlarge

Active investors could look to build initial positions in IBM stock in this relatively wide support area between $140 and $125. Alternatively, with implied volatility relatively high on the options, active investors could also look to sell out-of-the-money puts or put spreads with at least a couple months left until expiration.

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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/international-business-machines-corp-plug-into-ibm-stock/.

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