The company has struggled immensely with revenue growth over the past few years, which has led to a relatively stagnant stock price. Shares are actually down about 5% over the past five years, badly lagging the 100% rise in the Nasdaq over that time. Perhaps even worse is IBM’s 11% rise over the past decade, lagging the 313% rise in the Nasdaq.
IBM’s lacking revenue growth also led to the company’s $34 billion acquisition of Red Hat, which closed in 2019. The purchase helped push IBM’s year-over-year revenue growth into positive territory, albeit barely, with sales rising 10 basis points from the same period a year ago.
The top- and bottom-line beat is giving IBM stock a boost on Wednesday, although investors are wondering if it will be enough to cause an upside breakout in the stock.
Real Money is wondering the same thing as the team takes a closer look at its Stock of the Day pick. Let’s look at the charts.
Trading IBM Stock
As you can see on the daily chart above and the weekly chart below, IBM stock had been wedging into a tighter and tighter range ahead of earnings (blue line). Traders were looking for that range resolve either higher or lower - it didn’t matter which.
A breakout over resistance would trigger a long entry, while a break below wedge support would trigger a short entry. Bulls took control ahead of earnings, with resistance giving way and shares rallying.
Now though, bulls will want to see the stock hurdle the ~$142.50 area and more importantly, find this level as support. For more than a year, IBM has struggled to maintain above this mark on a weekly basis, logging just three weekly closes above this level over the past 20 months.
If it fails to do so, investors will need to be on the lookout for IBM stock giving up its post-earnings gains.
In that event, $134 is the level to watch. Below that mark and IBM stock will have lost seemingly every meaningful support level, including virtually all of its significant weekly and daily moving averages, as well as the backside of wedge resistance and uptrend support. Below $134 and IBM is a no-touch on the long side.
If IBM stock can clear $142.50 and hold this mark as support, investors can look for more upside. That includes the summer high near $149 should the stock maintain momentum.