Charts Say IBM Looks Risky Ahead of Earnings: Market Recon

IBM (IBM) reports earnings on Tuesday night, but the charts tell us to approach Big Blue with caution here.

It's true that the firm has beaten analysts' earnings-per-share expectations for a whopping 13 consecutive quarters. And while EPS beats are nice, IBM also posted 3.5% year-over-year revenue growth back in January. That broke a nearly six-year string of year-over-year revenue contraction.

Now, IBM was one part of my portfolio until this winter, when I went to higher cash levels. The stock was one of the casualties, but I'm currently in the process of redeploying some cash.

Is it time to get back into IBM? Well, I've fallen into and out of love with the firm's alleged "renaissance" enough times over CEO Ginni Rometty's tenure to know not to believe a comeback until I see it.

Analysts expect IBM to report a another quarter of revenue growth on Tuesday evening. However, I believe the firm will have to show momentum off of the 27% cloud-based revenue growth it reported last quarter. Mobile and Security are also areas where we need to see continued strength.

It's also worth noting that while IBM's share price has gone both up and down in recent years, it's been mostly down since early 2017. Let's look at the stock's chart:

As you can see, IBM has traded in a range larger than $25 in 2018, and the firm's Chaikin Money Flow (CMF) has sported very little green since 2017.

However, the model above shows us potential support below $154, with $144 completing a 100% retracement for the second time. First-line resistance should show close to $160, which could become support on a positive reaction. (IBM closed on Monday at $157.89.)

This is clearly a high-risk name for a small investor, but you could attempt to make money on a positive reaction to Tuesday's earnings if you're willing expose yourself to discounted equity.

You could also write $155 or $152.50 IBM puts expiring this Friday. The $155 puts closed on Monday at $2.15, meaning that your net risk would begin at $152.85 on an adverse earnings reaction.

The $152.50 puts closed Monday at $1.40, but greatly reduce your risk to just $151.40 in the event that Rome does indeed burn.

Long CSX, HAL, LRCX, NVDA, SLB, XOM

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