IBM Earnings Unlikely to Break Trading Range

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Dow component International Business Machines Corporation (IBM) has carved strong support near $150 in recent months but has failed to clear that magnetic level, stuck in a complex trading range that has now entered its second year. Tuesday’s first quarter earnings report is unlikely to dislodge this neutral theme, with a March 20 pre-announcement reaffirming fiscal year 2018 guidance but offering few major catalysts. 

Even so, the old-school tech giant is well positioned to benefit from its blockchain and artificial intelligence leadership in coming years and finally mount overhead supply above $200 set into place more than five years ago. While that’s little solace for current shareholders waiting to get paid, it also means sidelined players can wait and watch for long-term signals that could offer a historic buying opportunity. (See also: Why IBM Will Go On Forever.)

IBM Long-Term Chart (1987 – 2018)

A multi-year uptrend topped out at $42.50 in September 1987, just one month before the October crash. The subsequent downtrend continued well into the next decade, finally bottoming out near $10 in the second half of 1993. The stock then took off in a powerful trend advance, powered by the silicon chip and internet revolution, adding points into the 1999 high at $138.35. It ground sideways at that level into 2002 and broke down, dropping to a four-year low in the upper $50s.

A bounce into 2004 ended near $100, with subsequent rally attempts failing to penetrate the midpoint of the 1999 into 2002 decline until 2007. It then took off in a final rally burst, stalling in 2008 about nine points under the prior high and plunging with world markets during the economic collapse. The decline ended at a six-year low near $70, marking a major buying opportunity, with the subsequent uptrend clearing multi-decade resistance in 2010.

A strong uptrend fizzled out above $200 in 2012, giving way to a triple top pattern that broke to the downside in 2013. That signaled the start of a painful decline that dropped the tech giant to the bottom of the Dow performance rankings in 2014 and 2015. The downtrend finally ended at $120 in January 2016, yielding a 14-month bounce that ended at the .618 Fibonacci sell-off retracement level, with price action since that time stuck in a trading range between $140 and $180.

[Learn more about Fibonacci retracements in Chapter 6 of the Technical Analysis course on the Investopedia Academy]

IBM Short-Term Chart (2016 – 2018)

The monthly stochastics oscillator crossed into a long-term bull cycle in September 2017, but the signal failed in February 2018 when it rolled over just above the panel’s midpoint. A quick plunge toward $140 got bought, lifting the stock back above the 50% rally retracement level at $150, while two tests around that zone have found willing buyers into April. However, bulls have failed to build on that positive energy in recent weeks, carving a lower high at $161 while predicting range-bound action into the foreseeable future.

On-balance volume (OBV) ended a four-year distribution wave in 2016, while accumulation into February 2017 ended well below the prior high. Buyers returned at the start of 2018, lifting the indicator back to last year’s high, where it has been grinding sideways for the past four months. This pattern points to considerable speculation that IBM will embark on a faster growth curve in coming years.

Lower highs since 2013 have drawn a trendline, with resistance now aligned at the January high just above $170. Market players interested in buying the stock may wish to remain on the sidelines until it mounts that level because the event should set off strong buying signals. Conversely, a decline that undercuts the February low could trigger much steeper downside, opening the door to the .786 retracement near $130. (For more, see: IBM Unveils Tiny Computer Based on Blockchain.)

The Bottom Line

IBM’s first quarter earnings report this week is unlikely to trigger a breakout or breakdown, with the stock embedded within a complex trading range that is offering little opportunity on either side of the market. (For additional reading, check out: Apple, IBM Call for More Regulation of Digital Data.)

Source: Investopedia

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