Shares of International Business Machines Corp. (NYSE:IBM) lifted more than 2% last Friday to finish off the still-weak month of January. The bounce in IBM stock occurred at critical technical support levels on both the near- and longer-term charts, which are coupled with severe oversold readings.
Active investors and traders could look to use IBM stock as a proxy to play a further counter-trend bounce in the broader U.S. stock market.
Although the S&P 500 at its worst levels last month was only 15% off its 2015 all-time highs and thus per classic definition not yet in a bear market, many stocks and other risk assets have been in a bear market for some time.
Case in point: Shares of IBM are roughly 40% off their 2013 top and thus well in bear market territory. As such, although I see a bounce opportunity in IBM stock at present, until a confirmed bigger-picture bottom has formed, IBM in my mind remains in a well-defined downtrend.
When IBM reported its latest quarterly results two weeks ago, the stock lost another 5%, tumbling to a 68-month low the following trading day, and pushing it further into near-term oversold technical readings. Fundamentals don’t matter much in a broader-market risk-off environment, until investors reach peak pessimism.
Gauging from many investor sentiment readings, through a multimonth/multiquarter lens, investor pessimism still looks to have plenty of downside ahead.
IBM Stock Charts
On the long-term weekly chart, we see that IBM stock in January dropped back to a major horizontal support area (blue box) that until the year 2010 had acted as resistance. As these things go, major breakout areas ultimately and often must get retested, and from that perspective, IBM’s 40%-plus drop since the 2013 highs has acted as a big mean-reversion move.
The horizontal support area also happens to match up with a 61.8% Fibonacci retracement of the entire bull run from 2009 into 2013, and thus adds further strength to the blue confluence support area where at least an oversold bounce for now stands a good chance.
On the daily chart, we see that the MACD momentum oscillator reached two weeks ago reached oversold readings last seen in August 2015. Also note that the post-earnings selloff in IBM stock on Jan. 20 left behind on the chart a still unfilled down-gap, the top end of which is around the $128 mark and thus could act as a first upside target.
A next upside target is closer to the black horizontal line near $132.
Active investors could look to play IBM stock long toward those upside targets and against the post-earnings low from two weeks ago.
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