Big Upside for Big Blue

They say it's only a bear market if your stocks are going down. The owners of International Business Machines (IBM - commentary - Cramer's Take) have certainly been in a bull market since the beginning of the year.

IBM is the largest technology infrastructure and consulting firm in the world, and the company is a bellwether of the technology industry. If the strength in IBM is any indication, the outlook for technology is certainly improving.

The earnings theme for IBM is the same driver we are seeing behind the strength in many other multinational names. Global growth is strong, especially in the emerging markets, and this strength is offsetting any weakness in the domestic economy. The weak dollar is also helping IBM and allowing the company to compete more effectively against many of its international competitors.

The torrid pace of business expansion in Asian and India is driving technology and consulting revenues. Global technology and business services rose 17% in the first quarter. Software sales also came in with a strong 14% gain. If the domestic economy recovers next year, we believe this will only enhance the upside potential for the stock.

Click here for larger image.

IBM is in an excellent technical position right here. The stock has rallied since the beginning of the year and outperformed the S&P 500 on a relative basis. This type of relative strength shows strong underlying fundamentals overriding the weak market conditions. Investors are getting bullish feedback from the company and traders should view this as a strong clue about IBM's prospects in the coming months.

The stock has trended higher within the context of a bullish uptrend channel since January and has broken out over resistance at $120, forming a small bullish continuation pattern over the resistance line. The breakout over resistance completes a larger bullish intermediate-term consolidation.

The recent breakout puts IBM at its highest level since the 2000 technology bubble. It is possible for traders to buy the stock at $124 and look for a continuation of the primary uptrend. Stop losses could be placed below a confirmed break of the uptrend channel and the resistance line at $118.

IBM is one of the few names outside of the commodity-related names which has bucked the market trend and moved higher since the beginning of the year. The underlying fundamentals appear strong enough to put the company in a leadership position within the technology sector, and investors could get long the stock here and let it work its way higher.

---

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.