International Business Machines Corp. (NYSE:IBM) fell earlier this week after the company reported its latest quarterly results.
On the one hand, IBM stock after a 30% run off the February lows was in desperate need of some price consolidation. On the other, Tuesday’s post-earnings gap-down day took place right at a crucial area of technical resistance.
Right now, I see two possible trades setting up in IBM.
When IBM reported first-quarter earnings on Monday afternoon, the top and bottom lines both managed to beat analyst expectations. However, the company still is undergoing a major structural transformation, which for a firm of IBM’s size will take a while to take hold.
Some investors voiced their thoughts that changes weren’t being implemented quick enough and weren’t showing up quickly enough in the financials — IBM did report its 16th consecutive quarter of shrinking revenue — and that weighed on shares Tuesday.
With as many moving parts as a large company like IBM has, it is challenging even for the best of analysts to come up with a clear bullish or bearish story. That’s why I like to see what past and present price action might be telling us about the near- to medium-term path.
IBM Stock Charts
Starting off with the longer-term weekly chart, we see that IBM stock in 2010 broke out of a decade-long consolidation phase. This rally continued right into the first quarter of 2013, although signs of exhaustion began making their mark in the first half of 2012.
Since the 2013 top, IBM dropped about 45%, and by doing so it completely retraced the 2010-13 rally, but also completed an important retest of the former line of resistance.
From a momentum perspective, note that the Relative Strength Index indicator at the bottom of the chart at the February lows made a higher low versus its lows in 2014 while prices crashed to lower lows. This, coupled with the stock retracement to the former line of support, could make the case that the February lows were of significant medium- to longer-term importance.
On the daily chart, we see that Tuesday’s selloff in IBM stock took place at the blue horizontal line of resistance, which also matched up with a 61.8% Fibonacci retracement of the selloff from May 2015 into February of this year. From this perspective, more downside should be followed in the near future.
On Wednesday, IBM stock consolidated inside of Tuesday’s open-to-close range, which now sets up the following two trades for active investors:
- Buy IBM stock on a push above Wednesday’s highs near $147.30 with a price target at $151.
- Alternatively, traders could sell/short or buy puts in IBM stock on a break below Tuesday’s lows near $142.70, using a first price target around $137.
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