At first glance the price action in
) looks like it's the opposite of the uptrending channel in BHP -- but a small divergence makes a world of difference for anyone who owns IBM right now. Sure, IBM is trending lower, but its trendlines are converging, indicating that buyers on the downside are halting the selling more quickly in this stock.
The setup in IBM is called a falling wedge, and it's a reversal trade. This pattern has historically been a significant setup to watch - one study puts the falling wedge's ability to spot a reversal at more than 90%. The buy signal comes on a breakout above resistance, a level that IBM is currently testing. Don't be early on this trade -- obviously, IBM could fall materially further and remain within the wedge before a breakout does happen.
When and if shares break above resistance, I'd recommend keeping a protective stop on the other side of IBM's 50-day moving average.
To see this week's trades in action, check out this week's
Must-See Charts portfolio
-- Written by Jonas Elmerraji in Baltimore.
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