Immediately following IBM's (IBM) - Get Report fourth-quarter earnings report back on Jan. 19 the stock took an ugly dive. By the open of trade the next day the stock had completely recovered. Big Blue has moved steadily higher on very heavy trade since then, but further upside may prove difficult in the near term.
After four straight post earnings gains, which lifted the stock over 6.8%, IBM filled a major breakdown gap just below $179. Back in late October 2014 the stock suffered one of its worst earnings inspired sell offs in the last 10 years. Big Blue opened the week of October 20th with a giant downside gap. By the close the stock had fallen over 7%, its second-worst one-day drop (on April 19, 2013, IBM fell 8.3%, the biggest one-day fall over the last 10 years), as volume surged to near record levels.
Until last week IBM has been trading below this major earnings inspired breakdown gap. A pullback from this key area, which also includes the stock's 2015 peak, will offer patient investors a much lower-risk entry opportunity.
IBM's recent bull run has left behind a very solid support zone. Investors should view a fade back down to the $170 to $165 area as a very low risk entry opportunity. This key zone includes the stock's 2016 high near the upper band and the August/September highs near the lower band.
Also in play as this zone is retested is both the 40-week and 50-day moving averages. Once IBM regains its footing here it will be on set up well for a fresh rally leg. On the downside, a close back below $164 would be a clear warning sign to the bulls.